Question:
As a pastor, what can I deduct for a housing (parsonage) allowance?
Answer:
A minister who receives a housing allowance may exclude the allowance from gross income to the extent it is used to pay expenses in providing a home. A minister living in a parsonage qualifies for a housing allowance to the extent of his own out-of-pocket costs. The IRS lists only food and servants as prohibitions to allowable housing expenses.
The minister’s church or other qualified organization (e.g. religious school or college with board members accountable to local churches) must designate the housing allowance by official action taken in advance of the payment. If none of the minister's salary has been officially designated as housing allowance, the full salary must be included in gross income.
If a minister owns a home, the amount excluded from the minister’s gross income as a housing allowance is limited to the least of the following three amounts: (a) the amount actually used to provide a home, (b) the amount officially designated as a housing allowance, (c) the fair rental value of the furnished home, including furnishings and appurtenances such as a garage, plus the cost of utilities.
The following is a list of allowable housing expenditures:
As a pastor, what can I deduct for a housing (parsonage) allowance?
Answer:
A minister who receives a housing allowance may exclude the allowance from gross income to the extent it is used to pay expenses in providing a home. A minister living in a parsonage qualifies for a housing allowance to the extent of his own out-of-pocket costs. The IRS lists only food and servants as prohibitions to allowable housing expenses.
The minister’s church or other qualified organization (e.g. religious school or college with board members accountable to local churches) must designate the housing allowance by official action taken in advance of the payment. If none of the minister's salary has been officially designated as housing allowance, the full salary must be included in gross income.
If a minister owns a home, the amount excluded from the minister’s gross income as a housing allowance is limited to the least of the following three amounts: (a) the amount actually used to provide a home, (b) the amount officially designated as a housing allowance, (c) the fair rental value of the furnished home, including furnishings and appurtenances such as a garage, plus the cost of utilities.
The following is a list of allowable housing expenditures:
- Total mortgage payments (be careful not to duplicate amounts included under "real estate taxes" and "homeowner's insurance")
- Real estate taxes
- Homeowner's or renter's insurance
- Furniture, furnishings, appliances
- Utilities (e.g. heat, lights, water, sewer, telephone, water softener, cable, waste disposal)
- Rent paid
- Repairs paid personally
- Loan refinancing costs
- Other household supplies (everything except food and household employee compensation)
Sources: IRS Publication 1828; Clergy HousingAllowance Clarification Act of 2002; IRS Regulation §1.107-1.
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