February 12, 2017

Unusual Expenses Includable in Housing Allowance

Question:

A minister purchased a new riding mower and a new chain saw. Also, he had electrical wiring done by an electrician for an outdoor shed and his back porch. Plus, he paid to have a porch cover built for his front deck. May these costs be included in his housing allowance calculations?

Answer: 

The expenditures, if meeting the following general guidelines for use in connection with the pastor's personal residence, appear to meet the requirements. Although there are not likely court cases or Revenue Rulings citing the exact examples offered here.

In a June 2016 post, we shared the following:

"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."


However, often, large expenditures may not have an effect on the housing allowance as determined in accordance with the three-part test. Significant expenditures in one calendar year, often are limited by the fair rental value criteria. 

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