A church allows its assistant pastor to live in the parsonage in lieu of giving him a cash salary. Because his salary would be less than the rental value of the property, he pays the difference to the church as rent each month. What is the proper tax treatment to the pastor of the parsonage in lieu of cash compensation? Will the church have to begin paying property taxes?
The value of the partially rent-free housing in lieu of salary is subject to SE tax, but not income tax for the minister. Additionally, because he is a church employee, the property will not be placed back on the real estate tax roll, so the church will continue to enjoy its property tax exemption.
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