Skip to main content

Depreciation Entries for Churches

By

Question:

We have a church building valued at $351,000 which includes land of $120,000. How long should we depreciate the church and will a parsonage be depreciated for the same period?

Answer:

This question brings up two important points.

1. Assuming that the church is best served by using an accrual basis of accounting in accordance with Generally Accepted Accounting Principles (GAAP), then the church property's value is not the basis for depreciation. The original cost is used. The estimated useful life that many organizations use for real property is 50 years. The same holds true for the parsonage. Only the original cost of the building, not the cost of land, is depreciated over its estimated useful life.

2. In our opinion, many small churches are better served using the modified cash basis. Lay people and pastors alike have a better chance of understanding the reports. In these situations, no depreciation is recorded. If external parties demand it, then GAAP will require the recording of deprecation.

See "Churches Recording Depreciation" for complete discussion of accounting methods for churches.

Updated July 2020




Labels:

Comments

  1. AnonymousSeptember 6, 2014 at 5:20 PM

    I believe our church used the modified cash basis accounting. There were no fixed assets account in our balance sheet. In our previous congregation meeting there was an inquiry for a list of church properties to be part of the financial report as a footnote. What is the proper way to achieve this concern? We recently conducted an inventory and its a combination of donated fixtures and church purchases. Thank you and God bless!

    ReplyDelete
  2. UnknownSeptember 15, 2014 at 11:08 AM

    1) We see little concern in including this information in the Notes Section of the Financial Report.

    2) We see little value in attempting to reconstruct the original cost of these items.

    3) Finally, this brings up a possible idea of other uses for such a list. You may consider comparing your Notes with your insurance policy to determine whether the church is adequately insured.

    ReplyDelete

Post a Comment

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

By
Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a...
Post a Comment
Read more

Review: Form 1099 Payments to 501(c)(3) Organizations

By Anonymous
Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries
2 comments
Read more

Housing Allowance and Form 1099-MISC Reporting

By
Question: A church provides its minister a housing allowance but believes it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC in order to demonstrate the full earnings of the minister. (Starting in 2020, Form 1099-MISC is replaced with Form 1099-NEC for non-employee compensation.) If the church reports his compensation, including the housing allowance, on the Form 1099-NEC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040? Answer: This question brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2 , not as independent contractors who receive Form 1099-NEC . Box 1 on Form W-2 reports taxable compensation. It is reduced to reflect the church's designation of a portion of his pay as non-taxable housing. Then, in Box 14 (Other), Form W-2 typically reports as a memorandum item his additional non-taxable, housing allowa...
Read more