Designating a Housing Allowance
Make sure you do it right.
Designating a Housing Allowance

Many churches are lax in their housing allowance designations. Internal Revenue Regulation 1.107(b) requires that in order to be housing allowance, the amount must be designated as such pursuant to an official action taken in advance of the payment of the allowance by the employing church or other qualifying organization.

I recommend that housing allowance designations be approved every year and be approved by either the appropriate committee, the board of directors, or by a high ranking employee that has specifically been granted the authority to make the designations on behalf of the church.

Remember, the designation has to be done prior to the payment of the allowance, so beware of late designations or of designations that attempt to reclassify prior payments. In this area, it's wise to do it well and do it early in order to provide the maximum benefit to the minister.

This post is adapted from an article that first appeared on Elaine Sommerville's blog Elaine's Tax Tips for Nonprofits.

For more in-depth information on housing allowances, see "Allocating a Housing Allowance" and the Church & Clergy Tax Guide.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations."

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