Housing Allowance Advantage

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

Unfortunately many ministers either fail to claim them or do not claim enough. MMBB Financial services will work with you to maximize the value of the clergy housing allowance to which you are entitled.

The housing allowance is considered compensation for ministerial services. The clergy housing allowance includes housing-related expenses should include the cost of maintaining a home, including mortgage payments, taxes, repairs, insurance, furnishings, utilities, etc. The church must designate the value of the clergy housing allowance in advance. There are three common types of clergy housing allowance.

  1. 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.
  2. 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.
  3. 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. Housing-related expenses include mortgage payments, utilities, repairs, furnishings, insurance, property taxes, additions, and maintenance.

For federal income tax purposes, the clergy housing allowance is limited to the lesser of:

  1. The amount designated by the church;
  2. The amount actually spent on housing for the year by the minister, or;
  3. The fair rental value of a house, furnished, plus utilities such as gas, electricity, oil, telephone and water.

A minister cannot exclude more than the church designates. Any amount a minister spends on housing that exceeds what the church designates must be reported as taxable income. If audited by the IRS, it is the responsibility of the minister to document actual housing expenses.

A minister must pay Social Security/Medicare taxes on the dollar amount designated as clergy housing allowance.