Can Clergy Use Home Equity Loans to Qualify for the Housing Allowance?

Can Clergy Use Home Equity Loans to Qualify for the Housing Allowance?

If you managed to pay off your home mortgage this year, congratulations! However, you may notice that you have a lot fewer expenses to claim for your housing allowance at the end of the year. With less housing expenses, you also have less income exempt from income tax, and your tax bill may go up at tax time.

You may be wondering, could I take out a new loan on my home and use the payments as a housing expense just like the old loan? Yes, it is possible to take out a new mortgage or a home equity loan to use as a housing allowance expense… however, here is a very important note to consider:

IRS will not consider loan repayments as a qualifying housing expense UNLESS the funds from the loan are used for direct housing-related expenses.

 
Here’s an example: If you took out a home-equity loan to help pay for your child’s college education, you could not use the monthly mortgage payments as an expense for the housing allowance. Since you spent the money on college education instead of direct housing expenses, it does not qualify for the housing allowance.

Payroll Partners is committed to helping clients stay informed about payroll, tax and human resource news, developments and current events. This article is intended to provide readers with general information on tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax practice. All efforts have been made to assure the accuracy of the information. Payroll Partners does not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax practice. If you are seeking tax, financial or human resources advice, you are encouraged to consult a licensed professional.

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