Can you modify housing allowance mid-year?

Can you modify housing allowance mid-year?

Can you modify housing allowance mid-year?

The Housing Allowance can be amended (changed) as often as needed.  We always recommend overestimating when designating a housing allowance.  The goal would be to have enough of a buffer in the designation to end up with unused housing at the end of each year.  This eliminates the need to amend the allowance mid-year and, guarantees that a pastor will not be limited to the amount of his designation, but will be able to exclude all his housing expenses from income tax.  It never hurts to designate too high, but it can hurt to designate too low.

Theoretically there is no reason to lower a housing allowance since any unused housing would be considered taxable salary at the end of the year.  Lowering a housing allowance is not necessary even in the event of a decrease in pay.  The designated allowance cannot be more than 100% of salary.

There can be a legitimate need to increase a housing allowance.   The issue to keep in mind when amending the allowance is the fact that the allowance is never retroactive.

Since housing allowance is never retroactive when it comes to the expenses you pay. This means you can not “go back” and pick up expenses you have paid and consider them to be a part of your used housing allowance at the end of the year if you exceeded your designated housing allowance at the time you paid them.

While there is no list of qualifying housing allowance expenses provided by the IRS, it is understood that most reasonable household expenses can be included in the allowance. Some of these items include: down payment on a home, mortgage payments (including both interest and principal), home equity loan payments (assuming the loan proceeds are used for housing-related expenses), real estate taxes, homeowners’ association dues, property insurance, utilities, furnishings and appliances (including repairs), structural repairs, remodeling, yard maintenance and improvements, pest control, snow removal, maintenance items, and trash pickup.

Note that the cost of food, clothing and other personal items may not be included in the housing allowance. Also, housing-related expenses can only be included in the allowance for the year in which they are incurred.

If you own your home and receive as part of your compensation as housing allowance, you may exclude from gross income the smallest of the following:

  1. The amount actually used to provided a home,
  2. The amount officially designated as housing allowance, or
  3. The fair rental value of the home, including furnishings, utilities, garage, etc.


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