ROCKLAND, Maine — The city and a church have reached a tentative deal to settle a lawsuit over property taxation.

Under the agreement, Aldersgate United Methodist Church is expected to create a nonprofit corporation that would result in all its property becoming exempt.

Aldersgate filed the lawsuit in April, claiming that the city’s refusal to exempt all of its property was discriminatory. The church also wanted the court to rule that the city’s interpretation of state law governing property tax exemptions was unconstitutional.

The church owns three adjacent parcels on Wesley Drive, located off Route 17 across from Chickawaukie Lake. The 5,300-square-foot church is on one nearly 7-acre parcel — valued at $981,900 — that is exempted from property taxes.

The church, through its Wesley Trust, also owns a 1.6-acre parcel with a 1,600-square-foot parsonage that the city assessed at $246,700 and taxed $4,633 last year. Aldersgate also owns a little more than 5 acres — consisting of the parking lot and driveway — that was valued at $118,700 and taxed $2,229.

The church claimed in its lawsuit that all three parcels should be exempt from property tax because the church is a charitable and benevolent organization.

The city countered that the parsonage was being rented out and therefore any exemption was not owed. The city also has maintained that state law allows only the church building and immediate land around it to be exempt.

Under the tentative agreement reached last week through mediation, Aldersgate will create a nonprofit organization to own the property now being taxed by the city. That will be done by April 1 which is when values are determined for the upcoming property tax assessment.

If all properties become exempt, the church will drop the lawsuit and both parties will pay their own expenses, according to Rockland City Attorney Kevin Beal.

The city will not be required to repay the church for previous years and will not have to do anything as part of the settlement.

Beal said the only cost to the city will be its share of the cost of the mediator which is no more than a few hundred dollars.

The mediation was conducted as part the state court system’s alternative dispute resolution process, with attorney Steven Peterson of Rockport serving as mediator, Beal said.

The dispute between the city and Aldersgate dates back to 2010. In May 2011, the Rockland Board of Assessment Review voted 3-2 to reject the church’s tax abatement request for the previous year.

The lawsuit was filed after City Assessor Dennis Reed rejected another abatement request in February 2012.

The church building was erected in 1996, with the congregation moving from the former Pratt Memorial Methodist Church on Union Street in Rockland that now houses the Wyeth Center.

The church is represented by attorney Joel Oster from the Alliance Defending Freedom organization of Leawood, Kan.

Oster said Monday that the church is pleased with the outcome but will need to do its due diligence to see if it can form the nonprofit charitable organization to allow for the land to be exempt.