Determining Housing Allowance on Minister Taxes

There are a number of tax exemptions that ministers can benefit from as long as ministers are aware of these exemptions. One of the most common is a tax exempt housing allowance. All expenses for housing which includes furniture and maintenance can be deducted legally. Here is how to determine if you are eligible and how to go about it. 

Determine Eligibility

A minister is defined by the IRS as a person who is “duly ordained, commissioned, or licensed minister of a church.” Religious employees that don’t have these credentials are not eligible for the housing allowance.

Deductions

Once it is determined that they are eligible for the housing allowance clergy tax exemption they are allowed to claim practically all expenses for a residence which includes mortgage and rent payments, insurance premiums, property taxes, utilities, furniture, floors, decoration, landscaping, repairs, remodeling costs, cleaning supplies, etc. Everything on the property aside from food, clothing or maid service can be claimed.

Preparation

Housing allowance can only be set once per year and must be recorded in a church’s official minutes of the board or advisory committee. Ministers can claim any amount up to 100 percent of their salary but not exceed their salary. Thoughtful preparation can often pay off by setting housing allowances at a greater amount than what you estimate using then if at tax time, you have not used all of the allowance for housing expenses, you will then pay income tax on the difference. If your housing expenses exceed the allowance, they cannot be claimed at tax time. A good rule of thumb is that it is more advantageous to set housing allowances too high rather than too low.

Good preparation also includes adequate proof through documentation. Make sure to keep mortgage statements, rental records, receipts, etc. It is not necessary to itemize housing expenses, but it is necessary to have documented proof of all expenses.

Tax Time

Typically housing allowances are reported to the IRS on W-2 forms from the church. Additionally, any unused portions of an allowance must be recorded under wages and salaries on Form 1040. Home-owning ministers can also claim mortgage interest and property taxes on their income taxes as well.

Before submitting any information in regards to a housing allowance, it’s always advised to speak to tax services professionals to ensure that you’re submitting properly.

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Sarah Wozniak

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