The Parsonage Income Tax Exclusion
posted Aug 31, 2017 by Meyer Levy, CPA in the Mission Matters Blog
Are you a church minister? There’s a tax break on your horizon. Taking advantage of something known as the “parsonage” housing allowance exclusion from federal income tax allows certain church ministers to save on their taxes. Who exactly is eligible for this exclusion? Read on.
What exactly is the parsonage tax exclusion?
The Internal Revenue Code provides that “ministers,” or those who can be classified as ministers for purposes of the tax code, may be able to exclude a portion of their income (earned in their ministerial service) that has been used to offset their housing expenses. The income is excluded so it is not to be reported for purposes of federal income taxes (and most state and local taxes as well) but will still be subject to social security tax.
So, who’s eligible exactly?
The parsonage exclusion can only be utilized by “ordained, licensed or commissioned” persons, and can only be provided as payment for services that are “duties of a minister,” which could include....
- Ministration of religious functions
- The conduct of religious worship
- The control, conduct and maintenance of religious organizations
What is the value of the allowance?
The parsonage exclusion can be used on housing expenses which include the down payment on a house, closing costs, mortgage payments (includes interest and principal), home equity payments, real estate tax and property insurance, utility cost, household goods and more. However, there is a limitation on how much eligible persons can exclude.
You can exclude from gross income the lesser of the following amounts:
- The amount officially designated (in advance of payment) as a housing allowance;
- The amount actually used to provide or rent a home; or
- The fair market rental value of the home (including furnishings, utilities, garage, etc.).
Want to learn more about the parsonage income tax exclusion? Consult our whitepaper, “The Parsonage Exclusion from Federal Income Tax: Everything You Need to Know”. Any questions, reach out to our Not-for-Profit Services Team.