Housing Allowance allows a minister who is ordained, licensed, or commissioned to receive a designated portion of their salary that is excluded from gross income and not subject to federal income tax. The provision recognizes that a minister often uses their home as part of their regular duties.
The Minister's Housing Allowance is one of the greatest tax benefits available to ordained, licensed, or commissioned ministers and comes from Section 107 of the Internal Revenue Code.
How Does a Minister Receive Housing Allowance?
Whether the minister owns or rents a home, it is essential that his or her employing organization designate a housing allowance. Housing allowances must be:
Adopted by the organization board or leadership
Recorded in written form (such as minutes)
Designated in advance of the calendar year
However, organizations that fail to designate an allowance in advance of a calendar year should do so as soon as possible in the New Year. The allowance will operate prospectively.
What Are the Minister’s Housing Allowance Responsibilities?
The minister receiving the housing allowance must determine their eligibility, understand the limits, and follow the rules. Ministers must keep records to substantiate the amount they include when calculating housing expenses.
Eligible expenses include:
mortgage payments (principal and interest)
real estate taxes
utilities (gas, electricity, water, sewer, garbage pickup, local telephone service)
appliances and furniture (purchase or rental cost and repairs)
The housing allowance may not exceed the lesser of 100% of compensation or actual housing expenses.
Who Approves the Housing Allowance?
A housing allowance must be board-approved and designated in writing by the organization before the beginning of the calendar year. It cannot be designated retroactively, meaning it must be established before the minister earns the income on which the organization designates the housing allowance.