Summer is in full swing and that means house listings are skyrocketing and people are moving. This has been on my mind as our neighbors behind us just sold their house and we have yet to meet our new neighbors. Hopefully, they’ll be nice!
Moving is a big undertaking. Packing your things, transporting them, figuring out the logistics of it all, and trying to make sure nothing gets dented or dinged or forgotten in the process. It’s a lot of work, both mental and physical. In addition to all of the usual chores of moving, pastors have to think about their housing allowance as well. I’ll give you a hand and lay it out for you. If you’re a pastor with a housing allowance, this is what you need to do when you move:
Calculate Your New Expenses
Are your expenses going up or down? You need to calculate your expenses and find out. If you need a calculator to help, we have one. This should be fairly easy if you’re not making any big changes. However, if your living situation is changing dramatically, then this might be a several month process as you get used to your new lifestyle and get a better handle on your actual expenses.
It’s important to figure out how your expenses are changing, though. If they are going down and you don’t adjust your housing allowance accordingly, then you will have to add the excess back into your taxable income at the end of the year and you could end up with a large tax bill. If the opposite is the case, then you could end up paying taxes unnecessarily.
Calculate The Fair Market Rental Value Of Your New Home
Remember, there are limitations to the amount you can exclude from taxation as a housing allowance. The big one that some people forget about is that your housing allowance cannot exceed the fair market rental value of your home, even if your real expenses do. So, you need to calculate the fair market rental value of your house. Know how to do that? If not, read this article.
Request An Updated Housing Allowance
Once you’ve calculated your actual expenses and the fair market rental value of your new home, pick the lower of the two numbers and request it as a new housing allowance. If you’re not sure how to request a housing allowance from your church or denomination, ask whoever pays you.
While you might be used to requesting a housing allowance at the beginning of the calendar year, there is no IRS rule about when or how frequently you can request one. So, you can update it whenever you move. And then two months later when you figure out that your calculations were wrong you can update it again. The only limit to how much you can change and update your housing allowance is how much your church or denomination is willing to put up with.
It is important that you request your new housing allowance as soon as possible, especially if you’re asking for an increase. Housing allowances can only be paid proactively, not retroactively. That means that if you move in, buy $10,000 worth of furniture, and then request an updated housing allowance, your new housing allowance cannot cover that big furniture purchase. It needs to be both requested and approved before you incur the expenses for them to apply.
Make Sure Your Request Is Officially Approved
That brings me to my last point. Make sure your housing allowance is officially approved by your church or denomination. It’s not valid until it is. I’ve heard from pastors who thought they did everything right, but their church dropped the ball. They never made the housing allowance official, so the pastor ended up paying a bunch of unnecessary taxes.
Don’t let that be you. Follow up frequently until your updated housing allowance is approved and accurately reflected in your paycheck.
That’s how you do it. I can’t come over and scrub bathrooms or move furniture for you, but I hope this helps you at least a little bit!
If you would like to learn more about the ministerial housing allowance, watch for our new book this fall. You can also sign up for updates at the top of your screen!
