Requirements for Using the Parsonage Exclusion

“Ordained, commissioned, or licensed ministers of the gospel may be able to exclude from income tax the rental allowance or fair rental value of a parsonage that is provided to them as pay for their services. Services include: 

  • Ministerial services, . . . 

  • Administrative duties and teaching at theological seminaries; and

  • The ordinary duties of a minister performed as an employee of the United States (other than as a chaplain in the Armed Forces), a state, possession, political subdivision, or the District of Columbia.”
     

“Rental allowances. If you receive in your salary an amount officially designated as a rental allowance (including an amount to pay utility costs), you can exclude the allowance from your gross income if: 

  • You use the amount to provide or rent a home, and 

  • The amount isn't more than reasonable pay for your services. 

  • The amount you exclude can't be more than the fair rental value of the home, including furnishings, plus the cost of utilities.”
     

​“Fair rental value of parsonage. You can exclude from gross income the fair rental value of a house or parsonage, including utilities, furnished to you as part of your earnings. However, the exclusion can't be more than the reasonable pay for your services. If you pay for the utilities, you can exclude any allowance designated for utility costs, up to your actual cost.”

“Home ownership. If you own your home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income the smallest of:

  • The amount actually used to provide a home; 

  • The amount officially designated as a rental allowance; or

  • The fair rental value of the home, including furnishings, utilities, garage, etc.” —IRS Publication, 2016 Ed., 517, p. 9.

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