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Rules for Excluding Clergy Housing Allowance
Are Clarified – Your tax deduction may be limited

Recent Tax Court cases have made it necessary for the IRS to clarify the rules that allow members of the clergy to exclude from income the amount the church designates as a housing allowance in their personal income tax preparation. Up until 2002, the rules were unclear, resulting in higher exclusions than what the IRS intended.

For taxable years that begin after 2001, the rules state that a member of the clergy can exclude from income, the smallest of three amounts:

1. The amount designated as a housing allowance;
2. The amount actually spent on housing; or
3. The fair rental value of the home provided.

The new ruling also applies to pre-2002 tax returns that were filed after April 17, 2002.

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