Have you paid off your mortgage? You may be able to exclude from your gross income other eligible housing expenses directly related to providing a home. Qualifying expenses include utilities, repairs, improvements, furnishings, property taxes and insurance. Any additional mortgage that does not apply to improvements on your home cannot be excluded from gross income.
Do you have a home equity loan? The percentage of a home equity loan used to make improvements or remodel your residence is eligible to apply toward housing expenses. For example, suppose you receive a $50,000 home equity loan and use $25,000 of the loan for qualifying housing expenses such as repairs or improvements. Because $25,000 is 50% of the total loan amount, you can claim 50% of your loan payments as eligible housing expenses.
Have you refinanced your mortgage? If you used some of the mortgage proceeds for eligible housing expenses, the percentage of the loan used to pay for qualifying housing expenses (like repairs or remodeling) is eligible to apply toward housing expenses. For example, suppose your new mortgage amount is $250,000, which includes your former mortgage amount of $50,000 plus $40,000 to be used for repairs or improvements. Because $90,000 is 36% of the total loan amount, 36% of your loan payments can be considered eligible housing expenses.
Parsonage / Manse: A parsonage/manse allowance paid to you as part of your salary is not income to the extent you use it, in the year received, to maintain and furnish a parsonage/manse. The church or organization that employs you must officially designate the payment as a parsonage/manse allowance before the payment is made. A definite amount must be designated; the amount of the parsonage/manse allowance cannot be determined at a later date. If no part has been officially designated, you must include your total salary in your income. The major tax break granted to members of the clergy is the income exclusion for rental value of parsonages. Ministers may totally exclude the value of a parsonage that is provided them in kind by the congregation. But, where a cash, parsonage, or manse allowance is paid, a minister must include in income the amount that he has not used during the tax year to pay rent or otherwise maintain and furnish a home. Fair rental value of the parsonage, utilities paid by the church, parsonage, utilities, and furnishing allowance is subject to social security tax. If housing is provided to you by your congregation, the parsonage or manse exclusion cannot be more than what is reasonable pay for your services, and is limited to the fair market rental value (including furnishings, utilities, garage, etc.) of the home. This FRV limitation generally does not come into play when a home is provided.
FRV (Fair Rental Value): Should be determined objectively and between unrelated parties, what it would cost to rent a comparable home (including furnishings and utilities) in a similar location. The fair rental value of a parsonage/manse is determined for social security purposes only. This should be reasonable, but conservative. Source:< Back
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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