Housing allowance for a parsonage vs. a pastor-owned home

With a continuing trend of low interest rate mortgages, a pastor may want to purchase a personal home for the long term, after he or she moves out of a church-owned parsonage. Since housing allowances are such a hot button for an IRS audit, I want to make sure that you are very clear about the rules regarding a personal home vs. parsonage.

No part of a housing allowance may be used for any home other than the pastor’s actual residence. So if a pastor lives in a church-owned parsonage, the value of that benefit to the pastor is not taxable (for federal income tax purposes). Or, if the pastor is given an allowance, the amount is not taxable to the extent used by him to rent or pay for a home such that it does not exceed the fair rental value. Furnishings and the cost of utilities may be included in the housing allowance amount.

The housing allowance frequently comes up for discussion from non-religious groups that want to fight the clergy’s existing tax exemption. But for now, the housing allowance continues to be a safe, non-taxable benefit for pastors.

A pastor may still want to purchase a home for future use. However, the housing allowance may not be used for the [future] home if the pastor continues to live in a church-owned parsonage.