Many pastors earn a little extra income outside their regular church salary: an honorarium for officiating a wedding, a gift from a family after a funeral, a fee for preaching at another congregation. Along with that income come expenses, such as mileage, books, and supplies. It seems natural to deduct those expenses against the income. But for ministers who also receive a tax-free housing allowance, there is a catch known as the Deason rule.

Where the rule comes from

The rule takes its name from a 1964 Tax Court case, Deason v. Commissioner. It rests on Section 265 of the Internal Revenue Code, which says you cannot deduct expenses that are allocable to income that is exempt from tax. A minister’s housing allowance (or the fair rental value of a church-provided parsonage) is excluded from income tax. So the IRS treats part of a minister’s ministry expenses as connected to that tax-free income, and that part cannot be deducted for income tax purposes.

IRS Publication 517 spells this out plainly: if you receive a tax-free rental or parsonage allowance and have ministerial expenses, you must allocate a portion of those expenses to the tax-free allowance, and you cannot deduct that portion.

Why this matters more today

Before 2018, many ministers deducted unreimbursed church-related expenses as miscellaneous itemized deductions, and the Deason rule reduced those deductions. That itemized deduction was suspended beginning in 2018, and the 2025 tax law known as the One Big Beautiful Bill Act made the suspension permanent. As a result, unreimbursed expenses tied to your church salary generally produce no income tax deduction at all.

Where the Deason rule still has real bite is on Schedule C, the form ministers use to report fees they receive directly from individuals, such as wedding and funeral honorariums or guest preaching fees. Expenses against that income are deductible, but only after the Deason reduction.

How the calculation works

The nondeductible share of your expenses equals your tax-free housing allowance divided by your total ministry income (taxable and tax-free combined). Here is a simplified, hypothetical example:

• Church salary: $45,000
• Housing allowance excluded from income: $20,000
• Wedding and funeral fees reported on Schedule C: $5,000
• Total ministry income: $70,000

The tax-free portion is $20,000 out of $70,000, or about 28.6%. If this minister had $1,400 of Schedule C expenses, about $400 of them ($20,000 ÷ $70,000 × $1,400) would not be deductible for income tax. The remaining $1,000 would be.

Two important exceptions

• Self-employment tax is not affected. Publication 517 states that you reduce your otherwise deductible expenses only in figuring income tax, not self-employment (SECA) tax. Because the housing allowance is fully subject to SECA, ministers may deduct their allowable ministry expenses in full when computing self-employment tax. In fact, Publication 517 notes that unreimbursed employee expenses can be subtracted from church wages when figuring net earnings on Schedule SE, even though they are not deductible for income tax.
• Mortgage interest and real estate taxes are not affected. The allocation rule does not apply to these itemized deductions, so ministers who own their homes may still deduct them in full if they itemize.

The required statement

When the Deason rule applies, Publication 517 instructs ministers to attach a statement to their return showing their taxable ministerial income by source, their tax-free income by source, their otherwise deductible expenses, how the nondeductible portion was figured, and a declaration that other deductions are not allocable to tax-free income. Your tax preparer should handle this, but it helps to know it exists.

The best strategy: reimbursement

The cleanest way around the Deason rule is to avoid needing a deduction in the first place. When your church reimburses ministry expenses through an accountable reimbursement plan, the reimbursement is not taxable and is not a deduction, so there is nothing for the Deason rule to reduce. If your church does not yet have an accountable plan, or yours has a low cap, year-end budget discussions are a good time to raise it.

What to do now

1. Separate your records: church-salary expenses in one place, and expenses related to weddings, funerals and outside preaching in another.
2. Keep a mileage log and receipts for every ministry expense.
3. Ask your church about reimbursing more of your church-related expenses in 2027.
4. Bring your total housing allowance figure and all fee income to your tax preparer so the allocation can be computed correctly.

If you need guidance that is tailored specifically to your unique situation, we encourage you to connect directly with Pro Advisor Support. Their experienced team specializes in assisting clergy and church organizations with complex tax, payroll, bookkeeping, and HR matters. Whether you have detailed questions about compliance, deductions, or planning strategies, they can provide expert advice and walk you through the next steps with clarity and confidence.

Clergy Financial Resources
Tax | Payroll | Bookkeeping | HR | Consulting
11214 86th Avenue N.
Maple Grove, MN 55369
Tel: (888) 421.0101

This article provides general information and is not tax or legal advice. Tax law changes frequently, and every minister’s situation is different. Please consult a qualified tax professional before acting on this information.

Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (888) 421-0101
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com