Can you take a housing allowance if you own your home free and clear?

If a pastor owns their home free and clear (no mortgage), is the housing allowance then limited to only the actual expenses - insurance, taxes, utilities, upkeep?

Comments for Can you take a housing allowance if you own your home free and clear?

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Apr 11, 2021

Housing Exclusion
by: Vickey

When it comes to taking the housing exclusion ...you are mostly limited to the items you mentioned.

There may be a few additional items such as furniture, appliances, dishes and cookware, and decorating items including rugs, pictures, curtains, bedspreads, sheets, towels, etc., but without a mortgage or rent ...the excludable amount would be greatly reduced.

Dec 10, 2021

I don't think that is right Vickey
by: Matthew Walker

This is from the IRS website:

If you receive as part of your salary (for services as a minister) an amount officially designated (in advance of payment) as a housing allowance, and the amount isn’t more than reasonable pay for your services, you can exclude from gross income the lesser of the following amounts:

the amount officially designated (in advance of payment) as a housing allowance;
the amount actually used to provide or rent a home; or
the fair market rental value of the home (including furnishings, utilities, garage, etc.).

That last line is important. The quote reads: "you can exclude from gross income the lesser of the following amounts ... the fair market rental value of the home (including furnishings, utilities, garage, etc.)."

Thus, even though you own your own home free and clear, it seems that the IRS allows for a housing allowance if the amount does not exceed the fair rental value of the home.

Dec 10, 2021

Housing Allowance - Lesser of Three Amounts
by: Vickey

Thank you for your comment, Matthew. It is encouraging to see people reading and adding to this site!

You are correct too. The IRS does list those 3 "amounts" that a housing allowance recipient has to use to figure out how much they can actually use for a housing allowance exclusion...

BUT...

the "actual" amount used to provide or rent a home...is usually the SMALLEST number when a person owns their home free and clear. Thus it is the amount they have to use to compute the exclusion =(

For example, a minister gets $20,000 a year from his church that has been designated and paid as his housing allowance, his fair market rental value of his home (including furnishings, utilities, garage, etc.)is $24,000, BUT his actual expenses with no mortgage or rent payments were only $18,000...he has to use the $18,000 as his exclusion since it is the smaller amount...which means the "extra" $2000 he received as a housing allowance will have to be reported as "other income" and will be "taxable" =(

It gets complicated and is the reason I strongly advise my clients to get a knowledgable tax professional to do their taxes.

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Join in and write your own page! It's easy to do. How? Simply click here to return to Housing Allowance.

If you want to DIY your payroll, I highly recommend you look at using Gusto! It is very user friendly and their support is awesome! Plus they know how to set up and maintain payrolls for churches and nonprofit organizations.

Note: I am a "partner" of Gusto, but as I have told you before ... I never recommend anything that we or our clients have not tried and love =)

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