A common approach to estimating the fair rental value (FRV) of clergy housing is to apply a fixed percentage—often 12% to 15%—of the home’s current value. A more reliable alternative is to use methods such as a comparable rental analysis or a comparable sales evaluation performed by a qualified third party. Under IRC § 107, the FRV of a home must include the value of the residence itself, furnishings, appurtenances (such as a garage), and the cost of utilities. Below are the recommended methods and guidelines:

Fair Rental Value of the Home

• Comparable Market Analysis: Compare the property to similar homes in the same area, considering size, condition, location, and amenities. Real estate listings, local agents, or rental market reports can provide useful benchmarks.
• Professional Appraisal: Engage a licensed appraiser to determine the rental value. This provides a precise and defensible figure based on property characteristics such as square footage, number of bedrooms/bathrooms, condition, and neighborhood.
• Rental Income Approach: If the property has been rented previously, historical rental income can serve as a baseline, adjusted for current market conditions or changes in the property.

Furnishings and Appurtenances

• Furnishings: Add the rental value of furnishings to the FRV. This can be estimated by comparing furnished versus unfurnished rental rates in the area.
• Appurtenances (e.g., Garage): Include the rental value of features such as a garage. Compare homes with and without these amenities, or add the separate rental value if the garage could be leased independently.

Cost of Utilities

• Actual Utility Bills: Gather annual costs for electricity, water, gas, and other utilities, and add them to the FRV.
• Average Utility Costs: If bills are unavailable, estimate based on average utility expenses for similar homes in the area. Utility companies and local government websites often publish this data.

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
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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.

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
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