Housing Allowance-What can you claim?

 Which of these items can pastors claim on their housing allowance?

            A power washer

            Weed killer

            A screened porch addition

            House cleaning service

Ministers who receive a housing allowance can exclude certain housing-related expenses from their gross income for tax purposes, but only for federal income tax—not for self-employment tax. (BTW-Every credential pastor should utilize a housing allowance!)

✅ Eligible HousingAllowance Expenses

The expenses must be actually used to provide or rent a home and reasonably relate to the cost of providing housing. Here's a breakdown of typical allowable expenses:

1. Rent or Mortgage Payments

Monthly rent payments

Mortgage principal and interest (on your primary residence)

2. Real Estate Expenses

Property taxes

Homeowner's insurance

Mortgage insurance

3. Utilities

Electricity

Water and sewer

Gas or heating fuel

Trash collection

Internet (if used in home and not reimbursed)

Phone (landline or mobile, if reasonably allocated to housing)

4. Household Furnishings

Furniture (bed, couch, tables, chairs)

Appliances (refrigerator, stove, washer/dryer, etc.)

Drapes, blinds, rugs

5. Maintenance and Repairs

Lawn care and landscaping  (Power Washer, Weed Killer)

Pest control

Cleaning services/supplies  (House cleaning service)

Repairs (plumbing, electrical, HVAC)

6. Other Housing-Related Costs

Homeowners association (HOA) fees

Condo fees (if related to housing maintenance)

Snow removal

Home security systems

🚫 Not Allowable

Some things cannot be claimed under the housing allowance:

Costs exceeding the fair rental value of the home (even if spent)

Personal items unrelated to housing (clothing, food, entertainment)

Down payment on a home (although mortgage payments afterward are allowed)

Principal payments on a second home or vacation property

📌 Important Notes

The amount claimed cannot exceed the lesser of:

The amount designated as a housing allowance by the church/employer,

The actual amount spent on housing,

or

The fair rental value of the home (furnished, plus utilities).

Ministers must keep detailed records and receipts in case of IRS audit. (I’ve been through an audit.  I can’t stress how important this is!)

Housing allowance is excluded from income tax but is still subject to self-employment tax, unless exempt.

The most common item pastors mistakenly claim on their housing allowance that is not allowable is the full cost of their mortgage (especially principal payments or a home down payment) when it exceeds the fair rental value of the home.

❌ Common Mistake:

Claiming more than the fair rental value of the home (furnished, plus utilities), even if the actual expenses or designated allowance are higher.

For example:

A pastor receives a $40,000 housing allowance.

Spends $38,000 on mortgage, utilities, taxes, etc.

But the fair rental value of the home (furnished, plus utilities) is only $30,000.

👉 In this case, only $30,000 is excludable from income—not the full $38,000.

Other Frequently Misclaimed Items:

Home down payments – Not allowable, even though future mortgage payments are.

Home improvements that aren't maintenance-related – E.g., luxury remodels or additions. (Screened in porches)

Personal internet or cell phone costs – Unless clearly used for housing and not reimbursed.

Second homes or vacation properties – Housing allowance can only apply to one primary residence.

Expenses not actually paid – Just being eligible isn’t enough; pastors must actually spend the money.

🧾 IRS Caution:

Ministers sometimes treat the designated allowance as a tax-free amount without comparing it to the lesser of actual expenses or fair rental value,which can trigger IRS problems if audited. (Money out of your pocket!)

🏠 1. Determine Actual Housing Expenses

🏘️ 2. Estimate FairRental Value (FRV)

The IRS requires that the tax-free portion of the housing allowance notexceed the fair rental value (FRV) of your home furnished and including utilities.

You can estimate FRV in several ways:

✅ Options:

·        Ask a local realtor for a rental estimate for your home as if it were rented out furnished.

·        Use online tools like Zillow, Rentometer, or Craigslist to compare similar homes in your area.

·        Professional appraisal (especially for audit protection) – not required,but helpful.

Example:

Comparable homes rent for $2,200/month furnished with utilities.

• Annual FRV = $2,200 × 12 = $26,400

🧮 3. Determine the Excludable Amount

🧾 Pro Tip:

Keep a housing allowance worksheet each year to document:

What you requested and were approved for

Actual expenses

How you calculated the FRV (include Zillow listings or a realtor’s letter if possible)

Save or scan receipts for items purchased such as cleaning supplies, repair supplies, etc. Organize them by category for easy use at tax time or when    calculating next years anticipated housing allowance.