Designate your Housing exclusion amount for 2014
Now is the time to secure your maximum tax benefit in 2014! Your church board or (denominational governing body or pension board for retired ministers) should adopt a parsonage or housing allowance for you in writing, and before the end of the calendar year 2013.
If you live in a church owned parsonage that is provided rent-free for your ministerial services, your church may designate a special parsonage allowance as a portion of your compensation that you use to pay parsonage-related expenses such as utilities, furnishings, repairs, or other expenses necessary to maintain your household.
If you own or rent your home your church may designate a portion of your compensation for ministerial services as a housing allowance, to the extent it is used to pay rental expenses, mortgage payments, utilities, repairs, furnishings, insurance, property taxes, and maintenance, and does not exceed the fair rental value of the home (furnished, plus utilities).
Retired ministers may also exclude the amount designated by the denominational conference or pension board as a housing allowance for expenses incurred to live in their home. However, the surviving spouse of a deceased minister is not eligible for the exclusion unless he or she also is a qualifying minister.
It is important to note that although the designated amount of parsonage or housing allowance is not reported as income – a significant tax benefit – it may not exceed the actual expenses or the fair rental value of the home (furnished, plus utilities). Of course, the amount designated in advance is only an estimate of next year’s expenses, so if your actual expenses are less than the designated amount, then only the amount of the actual expenses are allowed to be excluded from taxable income.
For more information on this or other tax-related topics, please don’t hesitate to contact me by phone or email. I am available to discuss your situation at any time. If your church needs additional information on designating your exclusion allowance, the current edition of the IRS Tax Guide for Churches and Religious Organizations may be helpful.