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Housing Allowance Advantage with MMBB

The most important tax benefit available to ministers who own or rent their homes is the clergy housing allowance.

The three most common clergy housing allowance arrangements for ministers are (1) living in a church-provided parsonage, (2) renting a home or apartment, or (3) owning a home. The Internal Revenue Code (“tax code”) provides a significant benefit to each arrangement, including housing allowance benefits for retired clergy. The rules are summarized below:

  1. Parsonages: Ministers who live in a church-provided parsonage that is provided as compensation for ministerial services do not include the annual rental value of the parsonage as income in computing their federal income taxes.
  2. Parsonage allowances: Ministers who live in a church-provided parsonage do not pay federal income taxes on the amount of their compensation that their employing church designates in advance as a parsonage allowance, to the extent that the allowance represents compensation for ministerial services, is used to pay parsonage-related expenses such as utilities, repairs, and furnishings, and does not exceed the fair rental value of the parsonage (furnished, plus utilities).
  3. Housing allowances (minister rents a home or apartment): Ministers who rent a home or apartment do not pay federal income taxes on the amount of their compensation that their employing church designates in advance as a housing allowance, to the extent that the allowance represents compensation for ministerial services, is used to pay rental expenses, and does not exceed the fair rental value of the home (furnished, plus utilities).
  4. Housing allowances (minister owns the home): Ministers who own their home do not pay federal income taxes on the amount of their compensation that their employing church designates in advance as a housing allowance, to the extent that the allowance represents compensation for ministerial services, is used to pay housing expenses, and does not exceed the fair rental value of the home (furnished, plus utilities). Housing-related expenses include mortgage payments, utilities, repairs, furnishings, insurance, property taxes, additions, and maintenance.

These rules represent the most significant tax benefits enjoyed by ministers, but many ministers either fail to claim them or do not claim enough. In some cases this results from tax advisers who are unfamiliar with tax law as it pertains to clergy.