HOUSING ALLOWANCE Tax Rules - For ordained pastors living in owned or rented home

[Coach Elizabeth - Women Who Win]

HOUSING ALLOWANCE Tax Rules - For ordained pastors living in owned or rented home.

The ELCA Board of Pensions recognizes the unique and complex nature of taxes for
pastors. The following information will help you understand the federal income tax rules.
As a pastor who rents or owns a home, you do not pay federal income taxes on the
amount of your compensation designated in advance as a housing allowance.

However, the allowance must represent compensation for ministerial services, be used
to pay housing expenses, and cannot exceed the annual fair rental value of your
home (furnished, plus utilities).

A housing allowance can be excluded only if it is officially designated by your
congregation or church organization through a resolution, meeting minutes or a budget
before payment is made. To assist your employer in designating an appropriate housing
allowance, you can estimate the housing expenses you expect to pay next year on the
worksheet on the reverse side.

The amount that can be excluded from taxable income as housing allowance is
always the smallest of the

• amount officially designated in advance as “housing allowance” by your congregation
or church organization or
• amount spent for your primary residence (mortgage principal and interest, utilities,
taxes, insurance, furnishings, maintenance, etc.) or
• fair rental value of your home, including furnishings and cost of utilities and
maintenance (owned or rented).

For more information
A real estate agent can help establish the fair rental value of a furnished home in your
area. One method is to take 12 percent of the appraised value of a house as the
annual allowance limit. For example, a $100,000 house might have a fair rental
value of $12,000 per year. However, because rental costs vary from area to area,
this method may not be appropriate for your community.

The Board of Pensions cannot provide specific tax advice to pastors. If you have questions
concerning your housing allowance exclusion or IRS Form 1040, contact a qualified
tax adviser who is knowledgeable about the unique tax situations for ordained pastors.
MINISTER’S GUIDE FOR
INCOME TAX
This guide is a good source of information to assist pastors in preparing their federal income tax returns. Contact the Service Center for a free copy if you have not received