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Housing Allowance Clarifications

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Question:

 If a minister doesn't want to keep records, can he simply accept the fair market rental value (plus actual cost of utilities)?

 Answer:

 Unfortunately, the Clergy Housing Allowance Clarification Act of 2002 clearly says, "No." The amount excluded from the minister’s gross income as a housing allowance is limited to the least of the following: (a) the amount actually used to provide a home, (b) the amount officially designated as a housing allowance, or c) the fair rental value of the home (plus utilities). I've found that the fair rental value is rarely the lowest amount, except when the minister's home undergoes considerable remodeling costs or a large mortgage prepayment is made.

 But... what happens when a minister pays off his home mortgage? Can he simply claim the fair market rental value? Again, unfortunately, "no." I know it sounds weird, but prepayments on a minister's home may be counterproductive, taxwise.

 Follow-up Question:

 How does one determine the fair market rental value?

 Follow-up Answer:

 The IRS will expect the minister to do his homework on this one. Local advertised comparable home rental rates may help. Ministers have also called upon knowledgeable realtors. Ask for the realtor's response in writing so that documentation is available in case of an audit. Most realtors' estimates will fall in a range and will not include the fact that the home is furnished--an obvious increase in value to any potential renter.
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Comments

  1. AnonymousDecember 24, 2013 at 3:23 PM

    Can you payoff a mortgage and prorate the prepayment each year over the life of the original loan for clergy housing allowance deduction purposes?

    ReplyDelete
  2. Corey PfaffeJanuary 11, 2014 at 12:16 PM

    Good question-please follow the link below for a blog post on this issue.

    http://ministrycpa.blogspot.com/2014/01/effect-of-mortgage-prepayment-on.html

    ReplyDelete

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