Housing Allowance for Ministers

[Super Mom]

I am still researching this. Thinking I read somewhere that a housing allowance had to be set up before earnings in that year???? What I'm researching, is if a housing allowance up to 100% of salary can be set up now or before the next year? Only actual costs are deductible of course, but then they can deduct the maximum come tax time.

[Burke]

The housing exclusion allowance must be decided and put in writing by the church board/governing body before the beginning of the next tax year. And the amount deductible is the allowance granted, actual costs, or fair rental value of the home -- furnished, + utilities, whichever is less. There is no advantage to declaring 100% of salary as housing, if it does not meet these criteria. Any excess would be taxable.

[Super Mom]

The housing exclusion allowance must be decided and put in writing by the church board/governing body before the beginning of the next tax year. And the amount deductible is the allowance granted, actual costs, or fair rental value of the home -- furnished, + utilities, whichever is less. There is no advantage to declaring 100% of salary as housing, if it does not meet these criteria. Any excess would be taxable.

Ok on the 100%---that makes sense to me. In my little research thus far, I found a site that cited an IRS reg the you can't set up an allowance now and retroact to Jan 1 but the church can set one up today at will be effective rest of the year. Is this right even if they've been earning income since Jan 1?? I plan to look at the reg, but does anyone just know right off?

[Super Mom]

found another cite that said the church can set up one pro active not retroactive, so they could get the rest of the year after the allowance is set up properly by the board?

[Burke]

found another cite that said the church can set up one pro active not retroactive, so they could get the rest of the year after the allowance is set up properly by the board?

Yes. The designation must be made prior to being paid. It cannot be paid retroactively. If the church fails to designate an amount prior to the beginning of the year, but does so later, the exclusion will apply only to amounts paid after the designated date. So they should calculate the amount based on that criteria to avoid excess housing allowance.

[MAMalody]

1. The housing allowance designation is pro active only. It must be designated prior to payment. It can be done anytime during the year but would only apply to that part of the year(s) that fell after the designation.

2. You may designate 100% of salary as housing. This is especially helpful when you have a smaller church where their compensation package is limited. This obviously affects AGI and related issues.

3. I would never worry about whether we have excess designated housing allowance, the worst that can happen is some income becomes subject to income tax. I normally recommend that my clients request their churches to designate 20% over their expected housing expenses. In this way they are able to make sure that unexpected expense will probably be covered instead of potentially lost.

The above comments are generalized in nature and when all the facts and circumstances of a particular pastor are considered you may not want to follow some or all any of the above items.

[Burke]

3. I normally recommend that my clients request their churches to designate 20% over their expected housing expenses. In this way they are able to make sure that unexpected expense will probably be covered instead of potentially lost.
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I like that strategy.