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 minister’s church or other qualified organization must designate the housing allowance pursuant to official action taken in advance of the payment. The IRS lists only food and servants as prohibitions to allowable housing expenses. 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 home.
ALLOWABLE HOUSING EXPENDITURES
- Total mortgage payments (Be careful not to duplicate amounts included below under “real estate taxes” and “homeowner’s insurance”)
- Real estate taxes
- Homeowner’s or renter's insurance
- Furniture, furnishings, appliances
- Utilities (including heat, lights, water, sewer, telephone, water softener, cable, waste disposal, etc.)
- Rent paid
- Repairs paid personally
- Loan refinancing costs
- Other (everything except food and household employee compensation)
(Sources: IRS Publication 1828; Clergy Housing Allowance Clarification Act of 2002; IRS Regulation §1.107-1)
This information is provided as a service of MinistryCPA.org to ministers and Christian ministries. Please contact us or your personal professional advisor to determine how this information may apply to your own situation.