Answer: Yes, you can use a new home equity loan for your housing allowance, but with some restrictions.

The Internal Revenue Service allows ministers to use home equity loans as a housing expense, but only if the loan is used for direct housing-related expenses (i.e. for maintenance or the purchase of a home). If you take out the mortgage and use the money to pay a non-housing personal expenses (like a car, tuition or medical expenses), then you cannot use the home equity loan payments for your housing allowance (Rasmussen v. Commissioner 68 T.C.M. 30 (1994)).

If you use the home equity loan partly for housing and partly for other expenses, you are going to have to keep good records in order to help your tax preparer file an accurate return and in order to prove your expenses to the IRS if they audit the return.

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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.

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