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Court Ruling Update on Housing Allowance

Yesterday, the Chicago-based 7th Court of Appeals rejected a case brought by the Freedom From Religion Foundation (FFRF) that would have declared tax-exempt housing allowances unconstitutional. The court overturned a previous ruling in favor of FFRF by claiming that FFRF lacked "standing" because the law did not affect them. 

Had the court of appeals upheld the previous ruling, thousands of clergy would have been affected by an increase in income taxes.

This news comes as an encouragement to us at MinistryCPA and to the clients we serve. Although FFRF vows to appeal their case to the Supreme Court, the court of appeal's decision sets a strong precedence in favor of clergy.

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Housing Allowance when Bartering for Rent Payments

Question:

If a minister rents his principal residence, but he performs services (mowing the lawn, repairing the roof, etc.) in lieu of rent, can he still qualify the rent amount for a housing allowance tax benefit?

Answer:

Of course, bartering income is taxable. The Internal Revenue Code interprets that above situation as follows: tenant/minister receives taxable income for the fair market value of the services he provides, andtenant/minster pays landlord for renal of residence. The minister in this case reports taxable income for services provided in lieu of rent. It is also likely subject to self-employment tax. He may then claim as qualifying housing allowance expense equal to the amount he "pays" for rent of his personal residence. Essentially, there is no difference than if the minister and his landlord simply traded checks.

See a past MinistryCPA post regarding this topic: http://ministrycpa.blogspot.com/2016/09/services-to-church-in-lieu-of-rent-of.html