How do you figure the housing allowance for a pastor who lives in a church owned parsonage?

A pastor who lives in a church owned parsonage has 2 parts to his housing allowance.

Part One: The first part is a value that he receives and not a part of his cash salary.  It includes the fair market rental value of the parsonage and any utilities which are paid by the church.

Part Two: The second part is the portion of his cash salary which is designated as housing allowance.  This part continues to be paid to the pastor along with his regular salary.  The pastor keeps track of his own personal housing expenses and is able to exclude one of the following amounts, whichever is less.

1. The amount of the pastor’s cash salary which is designated by the church to be considered housing allowance.

2. The amount actually spent (see below: What expenses are included in the housing allowance?)

Many pastors living in a church owned parsonage do not have any of their cash salary designated as housing allowance and do not take advantage of this benefit.

How do you determine the fair market rental value of the parsonage?

Because a pastor must pay self-employment tax (Social Security and Medicare) on his housing allowance, it is important that you set a conservative yet reasonable value.  While good stewardship would suggest a more conservative figure, it would be wrong to understate the value.  Churches are responsible for determining the fair market rental value of the parsonage but generally the church and pastor work together to arrive at this figure.  There are many elements to consider in setting a fair market rental value, such as condition, location, current demand and economic conditions and you may wish to consult a realtor or appraiser.

What expenses are included in the housing allowance?

The following expenses, when paid by the pastor, are included in part two of his housing allowance.

1.  Improvement, repairs, and upkeep. This includes a room addition, new roof, fence, sod, swimming pool, garage, refrigerator repair, etc.

2.  Furnishings and appliances. Including dish washer, TV, personal computer, pool table, piano, dishes, blender, lawnmower, etc.

3.  Decorator items. Such as rugs, curtains, pictures, plants, knick knacks, wallpaper, paint, towels, bedding, etc.

4.  Utilities. Electric, garbage, water, telephone (not business), cable TV, internet, gas, water softener rental, etc.

5.  Miscellaneous. This would include cleaning supplies, light bulbs, dry cleaning of drapes, carpet cleaning, landscape tools, garden hose, etc..

Attention: Tax Law is subject to interpretation. Please be advised that the material contained on this Web site is for information only and is not intended to be a substitute for professional legal advice. The Stewardship Services Foundation endeavors to update the information on this site on a regular basis, but cannot guarantee its accuracy at all times.