Clergy Housing Allowance expenses over multiple years

[rwom1217]

I purchased a home warranty in 2022 for $600 that went from 11/23/22 - 11/22/23.  What amounts do I exclude from my '22 and '23 taxable income?

My thought was to base it on the percentage of days in each year.  So, there were 39 days in '22, and 326 in '23.  Using '23 numbers, 326/365 = 89.3% of the year.  89.3% of $600 is $535.80.  So, $535.80 would be in '23 (and $64.20 in '22).  Would this be the correct way to do it?

[DavidD66]

No, you do not allocate the cost between two years.  You would include the entire amount as a household expense in the year you paid it.  So if you paid $600 in 2022, you would include 100% in 2022 when determining your total household expenses.  The amount your church gives you as a clergy housing allowance is the amount you do not have to include in your income.  Your church or parish, or whoever you work for may consider the cost of the warranty in determining the amount of your housing allowance.  

[Opus 17]

Note: you don't exclude anything from your income.  You might have to include something.  

Your housing allowance must be designated in advance and in writing by your church or denomination.  It should not be reported as part of your box 1 W-2 taxable wages.  That is, it is already excluded from income.  Then, you add up your qualified housing expenses.  If your housing expenses are less than the housing allowance, you must add back the excess housing to your income (include it in your income).  If your housing expenses are more than the housing allowance, you don't get an additional deduction or exclusion.

If your housing allowance is not already excluded from your taxable wages by your church, there is no legal way to deduct or exclude your housing costs.  The allowance must be set up properly and excluded by your church, the question is whether or not you need to add anything back.