Housing Allowance for Extra Mortgage Principal Payments

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Question:

Can a pastor pay extra on his mortgage principal and use it to count toward his housing allowance?

Answer:

Yes, but.

A minister who receives a housing allowance may exclude the allowance from gross income to the extent it is used to pay expenses in providing a home. The IRS lists only food and servants as prohibitions to allowance housing expenses. If a minister owns a home, the amount excluded from the minister’s gross income as a housing allowance is limited to the least of the following: (a) the amount actually used to provide a home, (b) the amount officially designated as a housing allowance, or c) the fair rental value of the home (IRS Publication 1828; Clergy Housing Allowance Clarification Act of 2002; IRS Regulation Section 1.107-1).

Because of the third limitation listed here, many ministers gain little or no benefit by accelerating their mortgage payments. For example, an additional $5,000 principal payment adds to the amount actually used to provide a home. But it does not increase a minister's fair rental value of his home.