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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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My church in PA has a phone co. cell tower in its ...

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My church in PA has a phone co. cell tower in its steeple. 2 questions -

1) Do we have to pay any kindof taxes on the monthly rental income we get from the phone co.? (currently all we pay are local taxes on the value of the steeple as part of our total property, and we are reimbursed for these taxes by the phone co.)

2) If we sell the rights to our cell tower to an outside party for a lump sum settlement, do we have to pay any kind of taxes oin the lump sum?
Submitted: 11 years ago.
Category: Tax
Expert:  RD replied 11 years ago.
An exempt organization is not taxed on its income from an activity that is substantially related to the charitable, educational, or other purpose that is the basis for the organization's exemption. Such income is exempt even if the activity is a trade or business.

Generally, income derived from the rental of real property and incidental personal property is excluded from unrelated business income and hence, is not taxable. However, there are certain situations in which rental income may be unrelated business taxable income:
¡ if a church rents out property on which there is debt outstanding (for example, a mortgage note), the rental income may constitute unrelated debt-financed income subject to UBIT. (However, if a church or convention or association of churches acquires debt-financed land for use in its exempt purposes within 15 years of the time of acquisition, then income from the rental of the land may not constitute unrelated business income.),
¡ if personal services are rendered in connection with the rental, then the income may be unrelated business taxable income, or
¡ if a church charges for the use of the parking lot, the income may be unrelated business taxable income.


You can review the link below specific to your case-
http://www.gcfa.org/TaxConsideration.pdf

Regarding sale of rights for a lumpsum settlement-

In general, rents from real property, royalties, capital gains, and interest and dividends are not subject to the unrelated business income tax unless financed with borrowed money.
So the sale of rights to cell tower (being a capital asset) will not be subject to tax.

Let me know if you have any question.
[email protected]

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases.


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