Skip to main content

Housing Allowance Clarifications

By
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.
Labels:

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

Post a Comment

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

By
Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a
Post a Comment
Read more

Review: Form 1099 Payments to 501(c)(3) Organizations

By Anonymous
Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries
2 comments
Read more

Form 944 or 941 Filing for Churches

By Anonymous
Question:   A new church filed for an employer identification number (EIN) recently. It received notification from the IRS about the EIN, stating that the church must file Form 944 by the following January deadline. The church has no non-ministerial staff members. Since income tax withholding is elective by ministers and none of the pastors has elected to request non-mandatory withholding is the church required to file Form 944 annually? Also, a quarterly Form 941 (rather than an annual Form 944) is required of some employers. Which IRS form, if any, should be filed? Answer: According to IRS Section 1402(c) and 3121(c), ministers are not subject to mandatory income tax withholding. Unless one or more ministerial employees request non-mandatory withholding, church employers with only ministerial employees do not need to file Form 941 or Form 944.  The IRS  Ministers Audit Technique Guide  explains in further detail a minister's treatments for social security, Medicare tax, Fed
Post a Comment
Read more