One of the best ideas in church real estate is a building that pays for itself. Part of it earns rent, and that rent pays for a free ministry in the other part. A shelter, a food pantry, a youth gym, a counseling center: the paying space carries the free space.

It's a great model. But two sets of rules trip churches up: property taxes and fair housing. Here's what to know before you start.

Property tax: "owned and occupied"

Kentucky's constitution (Section 170) exempts church property from property tax when the church owns it and occupies it. Owning it isn't enough. The church has to be using it.

The Kentucky Supreme Court applied that test strictly in 2025. The practical takeaway: any part of a building rented to outside tenants will likely be taxed, even if the rest of the property stays exempt. Kentucky's new church housing law, House Bill 333, doesn't change this. It doesn't include a tax break.

Common ways churches handle it:

• A ground lease. The builder leases the land and owns the new building. The building and the lease are taxed, and the sanctuary stays exempt. See our ground lease guide.
• Splitting the parcel. The income property gets its own parcel, separate from the church's worship property.

Every situation is different. Your church's accountant and the Jefferson County Property Valuation Administrator (PVA), the office that assesses property values, are the final word.

Fair housing: who you can rent to

The federal Fair Housing Act and Kentucky's own fair housing law protect renters from discrimination based on race, color, national origin, religion, sex, disability and family status. Churches get a narrow exception: a church can give preference to members of its own faith for housing it runs for non-commercial purposes. That's it.

Here's where good ideas can go wrong. Say a church wants to run a free shelter for women in half of a building, and rent the other half to women only to keep the building safe and consistent. The free shelter can be fine, since short-term shelters are often treated differently from regular housing. But renting regular apartments to "women only" would very likely be illegal sex discrimination, even for a church, and so would advertising them that way.

The fix is simple: rent the income side to anyone who qualifies, and run the ministry side the way it needs to run. Have a fair housing attorney review any single-sex part of a project before you start.

Zoning: when you don't qualify for the shortcut

House Bill 333 only covers affordable housing projects of 24 homes or fewer on qualifying sites. A mixed-income building, a gym, an auditorium or an office goes through normal Louisville zoning. That's not a dead end. It just takes longer and needs a plan.

Churches also have a federal law on their side called the Religious Land Use and Institutionalized Persons Act (RLUIPA). It stops a city from putting a "substantial burden" on a church's religious exercise through zoning without a very good reason, and it has helped churches run shelters. It's a protection, not a shortcut. It doesn't cover ordinary rental income.

A checklist before you build

• Will any part be rented to the public? Plan for property tax on that part.
• Will any part be limited to one group? Have a fair housing attorney review it.
• Does the project fit House Bill 333, or does it need normal zoning?
• Will the church own the building, or lease the land to a builder?
• Has your denomination signed off, if it needs to?

Frequently asked questions

Will our church lose its property tax exemption if we rent part of our building?

Usually the rented part becomes taxable, not the whole church. Kentucky exempts church property that the church owns and occupies. Ask your accountant and the Jefferson County PVA how your specific property will be assessed.

Can a church rent apartments only to women?

For regular apartments, very likely not. The Fair Housing Act's religious exception only lets a church prefer members of its own faith, not one sex. Short-term shelters can be treated differently. Get a fair housing attorney's review.

Can a church build a gym or auditorium funded by rental income?

Yes. It just goes through normal zoning rather than the House Bill 333 shortcut, and the income-producing part will likely be taxed.

Want a free look at your church's property?

I'm Rob Bergeron, owner of Winner Realty here in Louisville. I'll put together a free review of what your church owns: what each property is worth, whether it qualifies under the new law, and what your options are. No cost, no obligation, and I'm not asking to list anything. If it ever turns into a deal, we talk fees up front and your attorney reviews everything. The congregation always decides.

Grab a time here, or text or email me at Rob@thewinnerrealty.com.

This article is general information, not legal or tax advice. Every church should run a specific project by its own attorney, accountant and denominational leadership.