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

Church Car Purchase for Pastor

By
Question: A church would like to purchase a car for the pastor's use. What is the best method to accomplish this goal? Should the car be titled in the pastor's name? What will be the tax consequences of this arrangement? Answer: The church has two main alternatives for this purchase:  Title the car in the pastor's name and reimburse him for business expenses Title it in the church's name and treat personal use as taxable compensation There are fewer immediate tax consequences for the latter. Since both are viable options, we will discuss both situations in this post. If the church chooses to give the car to the pastor and register it in his name, he is free to use it for whatever personal use he desires with no tax consequences. However, the fair value of the car is taxable as compensation at the time it is given to the pastor. Internal Revenue Code section 102(c) clearly states that gifts given to employees by their employers are taxable compensation. The...
2 comments
Read more

Can Form 4361 be filed after the deadline?

By
Question:   Is it possible to opt out of Social Security after the 2-year deadline? Answer:  Unlike other employees, a licensed or ordained minister has the option to opt out of Social Security and Medicare (FICA). If a minister wants to opt out they must file Form 4361 by the tax deadline including extension, in the second year in which they have received ministerial income of $400 or more. This election is final, and the minister cannot opt back into FICA taxes.  At MinistryCPA, we have received questions from ministers who have exceeded the two year deadline and desire to opt-out. There have been several court cases which provide guidance in answering this question. Some have argued that the minister was unaware of the deadline, had mistakenly believed they had filed a timely election, were given incorrect advice by an IRS employee, or their opposition to participate in Social Security and Medicare did not arise until after the 2-year deadline had passed. In each of th...
Post a Comment
Read more

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