A pastor begins serving at a new church on July 1 of a given year. The church intends to designate a portion of his compensation as housing allowance. How should the pastor and the church establish a partial-year housing allowance?
The pastor can receive a housing allowance for a partial tax year. In order to do so, he should request a designation from the church of an agreed-upon portion of his compensation as housing allowance. This portion or percentage can then be applied against his salary to determine the designated amount of housing allowance. Additionally, he will be required to comply with the final two rules for excludable housing allowance:
- Actual housing expenses, July 1-December 31
- Fair rental value plus cost of utilities for the same period