Determine the FRV housing limitation including furnishings and appurtenances

Determine the FRV housing limitation including furnishings and appurtenances

A common method for determining the fair rental value of clergy housing is using a fixed percentage, like 12%-15% of the current home value. However, this method may be inaccurate. The IRS and tax courts typically recommend using methods such as the comparable fair rental value or the comparable sales method from a third party to determine the fair rental value limitation.

To determine the fair rental value of a home, including furnishings and appurtenances such as a garage, plus the cost of utilities under IRC § 107, follow these detailed guidelines and methods:

  1. Fair Rental Value of the Home
    • Comparable Market Analysis: The home’s fair rental value (FRV) can be determined by comparing it to similar properties in the same area. This involves looking at rental listings for homes with comparable sizes, conditions, locations, and amenities. Real estate websites, local agents, or rental market reports can provide this information.
    • Professional Appraisal: Hiring a professional appraiser to assess the property’s rental value can provide a precise and defensible FRV. The appraiser will consider factors such as the size of the home, the number of bedrooms and bathrooms, the condition of the property, and its location.
    • Rental Income Approach: If the home has been rented out previously, the historical rental income can be used to determine the FRV, adjusted for any changes in the rental market or property condition.
  2. Furnishings and Appurtenances:
    • Furnishings: The value of furnishings should be added to the FRV of the home. This can be done by estimating the rental value of the furnishings separately. For example, if the house is fully furnished, you can look at the additional cost of renting a furnished home versus an unfurnished one in the same area.
    • Appurtenances (e.g., Garage): The rental value of appurtenances such as a garage should also be included. This can be estimated by comparing the rental rates of homes with and without such features. If the garage is rented separately, its rental value can be directly added to the home’s FRV.
  3. Cost of Utilities:
    • Utility Bills: Collect the utility bills for the home, including electricity, water, gas, and any other utilities. Add the total annual cost of these utilities to the FRV.
    • Average Utility Costs: If actual utility bills are unavailable, you can estimate the utility costs based on average utility expenses for similar homes in the area. Utility companies or local government websites often provide average utility costs for different types of homes.


Original content by clergyfinancial.com. This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.