When the United States began, most pastors lived in church-owned parsonages, and the US carried over the common European practice of not taxing that as income.

The basis of the housing exclusion from taxable income is deeply rooted in our nation’s tax history. In 1954, the provision was expanded to include the “cash” rental allowance paid in lieu of a provided dwelling.

Housing Pros and Cons

Pros: A housing allowance allows the pastor to select
housing which best meets the needs of the family; the pastor
has the opportunity to build up financial equity in a
house; the church is free of the responsibility of owning/
maintaining a parsonage.

Cons: Over time, a housing allowance is more expensive
for a local church than parsonage ownership; in some communities,
housing which meets parsonage standards is not
available or not in the price range which clergy can afford;
some clergy are not able to afford a down payment for a
home; at the time of a move, it may be difficult for the
clergy to sell a home; time spent on home maintenance
may reduce time available to spend on ministry.

Parsonage Pros and Cons

Pros: In most cases, a parsonage provides the most efficient housing
option in an itinerant system. Over time, it is generally
most economical for the local church and allows the pastor
to relocate more easily. It provides a comfortable
residence for the pastor, close to the work place, and
without the distractions of property maintenance.

Cons: A particular parsonage may not “fit” the parsonage
family – it may be too small or too large. The clergy
family may feel like “renters” and somewhat limited in
customizing the house to make it feel like a home. The
church may be limited in its financial abilities to make
needed repairs on the parsonage in a timely manner or
may place the parsonage at the bottom of the list of building

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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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