Churches are often exempt from property taxes, but it may depend on how they use their property.
Does federal law exempt churches from property taxes?
Contrary to popular belief, federal law does not exempt churches from property taxes. In fact, the Supreme Court has ruled that the First Amendment doesn’t require churches to be exempt from taxes.
What churches do have is a right to not be taxed because they’re a church. So a tax can apply to everyone including a church, but it can’t apply only to churches.
Churches are exempt from federal taxes under Section 501(c)(3) of the Internal Revenue Code. Section 501(c)(3) covers many types of non-profit organizations including religious, charitable, and educational organizations.
Under federal law, having 501(c)(3) status does not prevent states from taxing a church or other organization. Many states choose, under their own laws, to grant tax-exempt status to organizations that have received non-profit status from the IRS.
By choosing to recognize IRS-approved non-profits, states save themselves the trouble of having to figure out who is and isn’t a qualified church.
Do states exempt churches from property tax?
It’s common for states to exempt churches and other non-profits from paying property taxes. States can set non-religious-based requirements such as requiring a church to provide proof of IRS 501(c)(3) status or proof that a church regularly holds religious services.
In some places, the exemption is absolute. Any property owned by a church is exempt from taxes.
In other places, property tax exemptions depend on how a property is used. A house of worship will generally be exempt. If a church owns property that it leases to someone else or doesn’t use, that property may not be exempt.
There are varied rules on other buildings such as housing for clergy, the homeless, or others as well as playgrounds, bookstores, coffee shops, community centers, and other potential uses. In addition, some uses that fall outside of the church exemption may be covered by another exemption.
When a church uses a single property for multiple purposes, the church may have to pay property taxes on a portion of a property. For example, if a church has a house of worship that takes up 90% of a property and a store on the remaining 10%, the church may have to pay property taxes on 10% of the property’s value.
Some states also have de minimis exceptions where if a property is mainly used as a church but has a small store or pastor’s house, the entire property is exempt even if the store or house would normally be subject to property taxes.
Churches should talk to a local tax accountant before acquiring a new property or changing how they use a current property.
Can you make your house a church to avoid property taxes?
If you want to make your house a church to avoid property taxes, it may or may not work.
Some states may require you to take minimal steps like becoming an ordained minister online. Other states may require proof that you’re actually holding or in the process of beginning regular religious services at your home.
In some cases, zoning laws may prevent you from turning a residential house into a church without special permits. These requirements are usually allowed as long as they’re based on neutral concerns like the amount of traffic in the neighborhood.