How should I determine the fair market rental value of our (furnished) home?

[jamesnugent262]

My wife received a parsonage allowance for the first time in 2015, and I understand I need to document the Fair Market Rental Value of our home (furnished). What are the most common acceptable ways of doing this?

I know one way would be simply to ask a real estate agent to compute it, but roughly how much would they charge? Is that what most clergy in our position do? Just starting out...

Jim

[Opus 17]

I'm not sure the answers given fit your situation.  Are you living in a church-provided parsonage and ALSO receiving a parsonage allowance in cash/money?  If this is the case, please provide more details.

If you are living in a home you own, and are receiving a parsonage allowance to pay for your living expenses, the amount that is tax-free is your actual living expenses or the FMV, whichever is smaller.  This means that you will only have a problem if the IRS for some reason thinks that the FMV is less than your actual expenses, and I can't think of many situations where that would occur.  Normally you can use your actual expenses as the FMV.

[jamesnugent262]

Thank you for your reply. My wife works as a chaplain for a large hospice corporation. We own our home and have a mortgage.
I don't expect a problem since our housing allowance is less than 10% of the full appraised FMV of our home. We'll get it in writing before we file if that's what we need to do though.

[Opus 17]

It's not the appraised FMV that counts.  It's the FMV of the house as if it was a rental.  

Let's say that a fully furnished house in your neighborhood would rent for $1500 a month, and then you have $200 a month of utility bills.  Then, as long as the housing allowance is less than $1700 a month, it would not be taxable.  If it was more than $1700 a month, the amount over would be taxable.

If you need help determining the FMV as if it was a rental, you can check places like zillow, Craigslist, or ask a real estate agent for a quick estimate.

[SweetieJean · Accepted solution]

The clergyperson is responsible for determining the FMV, so do consult a local realtor. Their fees vary in different areas of the country, so it might be worth seeing if a member of your parish is a realtor.

[Critter1]

Also look in the local newspaper, online or one of those "rental apartment" books that are by the grocery store doors.

[SweetieJean]

Good idea, although the user's home came furnished.

[Critter1]

Many rentals can also be furnished ... these are some of the sources a realtor would use for comparison.

[jamesnugent262]

Earlier in the year I took a quick look at Craig's List and felt pretty comfortable... Might need to get more formal now.

[Critter1]

If audited you just have to provide supporting documents for your valuation so keep printed records. Get 3 estimates and average them.

[skypilot1992]

Not sure why you have a housing allowance listed as 10% of the FMV.  You are paying way too much IRS tax.  

Every year a clergy person must get the allowance stated in letter prior to the first pay check of the year---should be in the year (December) prior.  

It isn't unusual for the allowance to be nearly half of the total monthly paycheck. FMV also includes more than just the rental value...research the items.  Essentially treat the value as a FURNISHED rental and look at what expenses a landlord would expect to spend a year.  We included utilities and monthly landscape expenses (when we had them) and any replacement of furniture and other expected maintenance costs such as the backflow tests for sprinkling systems.  Just remember that if you exceed the allowance letter amount, it's no longer deductible against the allowance.

In 25 yrs of ministry, the beginning  experiences with FMV  were met with trepidation and shifted much more to an aggressive approach. If audited have the records and have the auditor prove a disallowance in the regulations.

audited 

Of course if captured or audited the secretary will disavow any responsibility for the above missive as being from a tax expert or licenced authority.