June 27, 2016

In-Ground Pool as a Housing Allowance Expense

Question:

Does the installation of an in-ground pool qualify as a housing allowance expense?

Answer: 

A minister’s housing allowance benefit is non-taxable income to the extent that the allowance is used for housing expenses. The three-part test includes consideration of the fair rental value of the home, plus actual costs of utilities (see this blog post regarding the three-part test). In addition, the expenses must be incurred relative to the minister’s principal residence. According to Federal Tax Regulations, Regulation, §1.107-1, Internal Revenue Service, Rental Value of Parsonages, only food and servants are specifically excluded. To our knowledge no court case, Revenue Ruling, or Private Letter Ruling has addressed in-ground pools. :) However, the expenditure, if meeting the above general guidelines, appears to meet the requirements.
Nevertheless, we find that large expenditures such as the installation of a new in-ground pool often do not produce the tax benefit expected because of the fair rental value limitation.

Example: According to a Google Search, the average installation cost of an in-ground pool is $21,919. If the fair rental of value of the home is $20,000 and other actual expenses full account for this amount, then the pastor will receive no tax benefit from the installation of a pool. 

Make sure to check out past posts concerning these issues


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