Good record keeping enables individuals to easily take advantage of all the tax credits available under the IRS code. Properly maintaining receipt and payment information provides reliable information that should be used in substantiating the costs to maintain a minister's residence.
Housing allowance is another part of a minister’s compensation that is not subject to federal or state income tax. The church board usually determines the housing allowance, and it is generally set based on the minister’s estimate of his housing expenses. For tax purposes, the amount actually allowed is the lesser of the amount set by the board, the actual expenses incurred or the fair rental value of the minister’s house (furnished plus utilities).
In order to quickly and accurately determine the amount of the housing allowance available at year end, it is a good idea to keep track of mortgage payments (principal, interest, taxes & insurance), rental payments, furnishings, utilities, repairs, maintenance, appliances, household cleaning items, yard maintenance and tools.
At year end if the housing allowance paid exceeds the amount of expenses incurred or the fair rental value of the property (fully furnished), this excess amount will become taxable, so it is a good idea to keep track of ALL expenses by saving receipts, statements and cancelled checks (or the bank record of such checks).
See our third post as we discuss additional items representing income.
