Selling a church building creates tax consequences that most congregations are not prepared for. Here are the issues we see regularly and how to plan for them.
First, capital gains. If the congregation bought the land and building for one hundred thousand dollars in 1985 and sells for eight hundred thousand dollars today, that is seven hundred thousand in taxable gain. Unless the congregation is a qualified 501(c)(3) and the sale qualifies for exemption, the IRS will tax the gain.
Some churches qualify for exemption on the sale if the proceeds are used within a reasonable time for similar religious purposes. The rules are specific. We recommend talking to a CPA who understands church tax law before you sign a purchase agreement.
Second, state transfer taxes. Texas does not have a state transfer tax, but some Louisiana parishes do. Check local rules before you price the deal.
Third, mortgage payoff. If the church has an outstanding mortgage, the payoff statement, lien release, and timing all need to be coordinated with the title company. We handle this as part of our standard close process, but the board needs to know the net proceeds will be less than the gross sale price.
We are not tax advisors, but we have been through enough church sales to tell you when you need to bring in someone who is.