Designating Ministers’ Housing Allowance
How Much & When to Designate
Using your Housing Allowance benefits wisely can be a valuable tool throughout your career. Seek personal advice for the best information about how to make the most of this wonderful advantage, both now and in conjunction with the properly set up clergy-specific 403(b) for tax-free housing allowance distributions. The amount of housing allowance you should have designated is based on a number of factors and guidelines.
Here are some recommendations:
- Estimate High: Your church can and should designate more than you intend to spend. Designating up to 100% of ministry income is allowable and can be beneficial in some cases. Your unused housing allowance will simply be reported as taxable income on your return. This way, you’re sure to have some extra for contingencies as they arise.
- You cannot deduct more than you spend on housing costs regardless of the designation amount. Additionally, it’s only applicable to ministry income.
- Be Proactive: Plan before you spend. Change your designation before you spend the money during the year if you need a home repair or have an unexpected purchase or some other contingency. We’d rather see unused housing allowance at the end of the year than not enough to cover your housing expenses.
- Be recognized by a Board Resolution & have written documentation. Your board should designate your housing annually. A good rule of thumb is to have it done by November or December for the following year.
- In case there’s ever an oversight, We recommend that you/the church include this simple sentence in your designating documents. “This Housing Allowance designation agreement shall remain in effect until amended or rescinded.”
A Common Myth about Housing Allowance
It’s not true that one must be ordained to qualify for housing allowance. Non-denominational churches have the ability to ordain, license, or commission their ministers and designate a housing allowance on their ministry income in most cases.
Housing allowance strategies are at the forefront of your clergy tax advantages. So take a few moments to learn what is really available to you with this wonderful exclusion and how to use it fully. Visit our Video Advantage page and view Housing Allowance for Ministers.
Resources & Personal advice with clergy tax specialists are only a click or call away. Contact us to get scheduled today!