Housing allowance and construction of a new home

by Norma Giles
(Robertsdale, Baldwin, AL)

Our pastor has been living in a church-provided parsonage for years.

He is nearing retirement.

This year, he decided to build his own home.

The church will lease out the parsonage or sell it when he moves to his new home.

I know he can exclude from income tax the lesser of 3 amounts. (Amount designated, amount actually spent, or fair rental value including utilities and furnishings).

My question is this: Can the cost of construction, appliances, and furnishings go into the amount actually spent, if he uses his own funds?

What about if he is still living in the parsonage during construction?

Thank you very much!!!