Skip to main content

Can You Claim a Housing Allowance for Two Homes?

By
Question: 

A minister recently accepted a call to a new ministry where he and his family are staying in the church parsonage. 

Meanwhile, the minister's home in the previous location is unsold. The minister is responsible for payments, taxes, and so forth, on the unsold home in the previous location. 
 
Can the minister claim a housing allowance on the unsold home? 

Answer:

The Ministers Audit Techniques Guide states that "A minister can receive a parsonage allowance for only one home." Many ministers own two homes due to the fact that the minister has accepted a position in a different community and has yet to sell his previous home (similar to the question above). 

Not only may a minister receive a housing allowance for only one home, but that home must be the minister's principal residence. A key term to understand here is the phrase "principal residence," which can be defined as the home where an individual is currently residing.  

So, in the situation above, the minister cannot claim a housing allowance on the unsold home. However, it is not a "lost cause" for the minister and his family. If living in a parsonage, the minister is allowed a small designated allowance to cover utilities and other housing expenses. Additionally, the minister must take into consideration the fair rental value of the property when reporting self-employment earnings for sake of the self-employment tax. 

Read about the controversial "Driscoll court ruling" that helped define the current IRS stance concerning a minister being able to receive a parsonage allowance for only one home. 

Also, we wrote a similar blog post concerning this matter on September 18, 2009:
Two residences for Housing Allowance Purposes? 

Labels:

Comments

Post a Comment

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

By
Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a
Post a Comment
Read more

Review: Form 1099 Payments to 501(c)(3) Organizations

By Anonymous
Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries
2 comments
Read more

Housing Allowance and Form 1099-MISC Reporting

By
Question: A church provides its minister a housing allowance but believes it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC in order to demonstrate the full earnings of the minister. (Starting in 2020, Form 1099-MISC is replaced with Form 1099-NEC for non-employee compensation.) If the church reports his compensation, including the housing allowance, on the Form 1099-NEC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040? Answer: This question brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2 , not as independent contractors who receive Form 1099-NEC . Box 1 on Form W-2 reports taxable compensation. It is reduced to reflect the church's designation of a portion of his pay as non-taxable housing. Then, in Box 14 (Other), Form W-2 typically reports as a memorandum item his additional non-taxable, housing allowa
Read more