Ministers of the gospel may exclude from gross income the least of the following three amounts: the amount designated as a housing allowance by the employing church or other qualified organization; the amount actually spent to provide or rent a home; or the fair rental value of the home, including furnishings, utilities, garage, etc. For example, if a church designates $20,000 as a housing allowance, but the minister only spends $18,000 on housing expenses, then only $18,000 can be excluded. Conversely, if the fair rental value of their home is $25,000, but the designated allowance is $20,000, only $20,000 can be excluded.
This exclusion recognizes the unique nature of ministerial roles, where providing housing is often integral to the position. Historically, parsonages were provided directly to clergy. The exclusion allows ministers to receive similar benefits, whether they receive a designated allowance or reside in a church-owned home. This provision can offer significant tax advantages, potentially reducing a minister’s overall tax burden. This benefit can be particularly helpful for those serving in areas with high housing costs.
