Those methods have nothing to do with your being clergy. See the method for allocating your housing below.
The General Rule
If you receive annuity payments from a nonqualified retirement plan, you must use the General Rule. Under the General Rule, you figure the taxable and tax-free parts of your annuity payments using life expectancy tables that the IRS issues. For a fee, the IRS will figure the tax-free part of your annuity payments for you. For more information, refer to Publication 939, General Rule for Pensions and Annuities.
The Simplified Method
Generally, if you begin receiving annuity payments from a qualified retirement plan, you use the Simplified Method to figure the tax-free part of the payments. A qualified retirement plan is a qualified employee plan, a qualified employee annuity, or a tax-sheltered annuity plan or contract (refer to Publication 575 for definitions). Under the Simplified Method, you figure the taxable and tax-free parts of your annuity payments by completing the Simplified Method Worksheet in the Form 1040 Instructions or in Publication 575. For more information on the Simplified Method, refer to Publication 575, or if you receive United States Civil Service retirement benefits, refer to Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits.
Clergy and 1099-R
As a retired minister, you can exclude the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that was designated as a rental allowance, from your gross income. Any allowance in excess of this amount is considered taxable income.
If you're not already on the 1099-R screen, open your return, search for 1099-R and select the Jump to link in the search results. Follow the directions to import or manually enter your 1099-R.
How you account for the exclusion depends on whether or not Box 2b (taxable amount not determined) is checked.
If Box 2b is checked
Enter the appropriate taxable amount in Box 2a of the Enter your 1099-R screen.
Enter the amount in Box 1 as it's shown on your 1099-R. Subtract your documented housing expenses from the gross distribution amount in Box 1 and enter the result or zero (whichever is greater) in Box 2a, Taxable Amount. Check Taxable amount not determined in the Box 2b section. Enter the rest of your 1099-R as you see it.
This will remove the non-taxable portion from the distribution reported on your 1099-R.
If Box 2b is not checked
- Enter your 1099-R exactly as you see it and complete the 1099-R section.
- Search for other reportable income and then select the Jump to link in the search results.
- Answer No to Did you receive other wages? and select Continue.
- Scroll all the way to the bottom of the Let's Work on Any Miscellaneous Income screen and select Start next to Other Reportable Income.
- Answer Yes to Any Other Taxable Income?
- On the Other Taxable Income screen, type Clergy Housing Allowance in the description and enter your documented housing expenses as a negative number up to the amount reported in Box 2a Taxable Amount (precede the expenses with a minus sign, like -10,000).
