How do I reduce the taxable portion from a 1099-R for housing allowance as a retired minister?

[fredpilecki]

I retired from being a pastor in 2016. I am reporting my first 1099-R and need to reduce the taxable portion of retirement by a housing allowance.  How do I record the housing allowance in Turbo tax?

[MargaretL · Accepted solution]

The housing allowance exclusion data entry depends if box 2b on your 1099-R is checked or not, please read below:

Retired ministers can exclude from gross income the housing allowance furnished by the church as a part of the pension that was designated as a rental allowance.

Turbo Tax does not separately calculate the exclusion or the taxable pension amount. The taxable difference of the pension and excluded housing allowance - will have to be manually entered in our 1099-R interview questions.

If your Form 1099-R has box 2b checked (taxable amount not determined)... To claim a housing allowance for retired clergy, enter a taxable amount in Box 2a of the 1099-R data entry screen in TurboTax. To compute the taxable amount, subtract the allowable housing expenses from the pension amount.  If the housing expenses exceed the pension, enter zero in Box 2a.

If the box 2b is not checked, please enter the 1099-R exactly as it is appears on the form. This will cause the full amount taxable. However, please make an adjustment in Other Income section:

1. Federal Taxes
2. Wages and Income
3. Scroll down to Less Common Income
4. Select Miscellaneous Income
5. Select Other reportable income, select ‘yes’ and you will be prompted to enter Description and amount. Please be sure to indicate that the income is your retired housing allowance, and enter the amount as a negative number.   At this point, the form 1040 will show full pension as taxable, but a negative adjustment on line 21 for housing allowance amount.

[akslarson]

After I go through the "Simplified Method" for determining the taxable amount, the housing allowance does not all come off the retirement section of the 1040. It still gives a positive "taxable amount."

[akslarson]

To follow up on my previous question. Why does TurboTax put me through the Simplified Method of obtaining cost basis, when there is no basis involved - just the housing allowance exclusion?

[Judy36]

I read your solution on the 1099-R with 2a Taxable amount while 2b is marked.  I manually went in the 1099-R and placed zero in 2a and it showed that however on 1040SR 5b is not showing a zero.  I believe I placed a number in inadvertently and I can't it it out.  What should I do?

[Judy36]

I did not see a reply to my question. A solution is needed to be able to file.

[DaveF1006]

@Judy36 First of all, do not try to add a 0 on your own or make any other adjustmentw.  Report the 1099R exactly the way the hard copy reads. Include the full amount as taxable in Box 2B.

Next perform the steps as MargaretL suggests. Let me list these for you,

1. Federal Taxes
2. Wages and Income
3. Scroll down to Less Common Income
4. Select Miscellaneous Income
5. Select Other reportable income, select ‘yes’ and you will be prompted to enter Description and amount. Please be sure to indicate that the income is your retired housing allowance, and enter the amount as a negative number.   At this point, the form 1040 will show full pension as taxable, but a negative adjustment on line 21 for housing allowance amount. When you record this negative adjustment, enter this with a - sign in front of the number.
6. In this manner, the pension amount shows taxable but then the full amount is offset by the negative adjustment.   

[wdkurtz43]

If Box 2b is checked and I change Box 2a without an explanation, doesn't that cause questions from the IRS?  It would seem an explanation is needed to show a lesser amount in 2a than the gross amount in 2.

[AmyC]

The 1099-R should be entered as you received it. Housing allowances should be subtracted out of your taxable income. Follow the steps above your post to deduct the housing expenses.

@wdkurtz43

[G-DAD]

These are very good instruction and it works but when Turbotax checks for errors, I receive and error that the 1099-R form 2a that was modified cannot be zero.

What is my solution?

[RobertB4444]

You should not be changing any of the numbers on your 1099-R.  Look at the instructions posted by @DaveF1006 above.  Put the full amount back on your 1099-R and then enter the negative amount - as the instructions say - to remove it from your tax return.

@G-DAD

[G-DAD]

I read his instructions after sending the question and yes, that works and seems more transparent.  Thanks for replying!