The Pastor’s Housing Allowance – Part 2

When it comes to a pastor’s housing allowance, a pastor can designate any percentage or amount of their annual income as being their housing allowance. However, when a pastor actually files his taxes, he is required to “claim” the dollar amount that represents the least of the following three options:

1.  The amount actually designated as housing allowance.

2.  The amount actually spent on housing-related expenses.

3.  The amount of the fair-market rental value of a pastor’s home,

fully furnished, with utilities.

Let’s think through the first two of these three options.

The amount actually designated as housing allowance refers to the amount of your income that you designate/request as being set aside for housing allowance at the beginning of the fiscal year. If you make $50,000/year and you designate $30,000 of that amount as being housing allowance, then $30,000 is your official designation.

The amount actually spent on housing-related expenses refers, not surprisingly, to what you actually spend throughout the year on your home.

The good news here is that most reasonable household expenses can be included. For example: a down payment on a home, mortgage payments (including both interest and principal), home equity loan payments (assuming the loan proceeds are used for housing-related expenses), real estate taxes, property insurance, mortgage insurance, utilities, furnishings and appliances (including repairs), structural or cosmetic repairs and improvements, remodeling, yard maintenance and improvements, pest control, snow removal, general maintenance items, trash pickup, and even household cleaning supplies. As you can see, there are a lot of options here![1]

So, for example, let’s say that, at the end of the year, you add up all of your housing-related expenses and find that you actually spent a total of $25,540. That would be your actual housing-related expense total.