Parsonage

[edwincook]

My wife is a pastor and we lived in a parsonage for 2023. The section in Turbo Tax ask "Parsonage or Housing Allowance Received" and below it asks "Qualifying Expenses". We did not have an allowance so what should go into these fields?

[ThomasM125]

You would leave both boxes blank. Since you did not have a housing allowance, you can't subtract anything for it from your income. You don't have any qualifying expenses since they cannot be more than your housing allowance, which is $0.

[edwincook]

Thank you for your response.  I see that this is a housing allowance.  Since we were provided a parsonage to live in, do we record income for the use of the home?

[DMarkM1]

According to the IRS, "The minister must include the amount of the fair rental value of a parsonage or the housing allowance for social security coverage purposes."  So, typically, the church should provide a statement or W2 box 14 amount or an amount should be in the compensation package showing the housing value/allowance provided.  

You would enter the fair rental value of the parsonage in the "Parsonage or housing allowance received" box. The amount is excluded from income tax but is still subject to self-employment (SE) taxes.  The follow on page then asks about SE taxation. Without an exemption from SE taxes (Form 4361) the parsonage rental value should be marked as subject to SE taxes. 

NOTE:  The housing exclusion cannot exceed reasonable pay for the clergy services. 

The amount in the 2nd box as shown earlier in the thread, is the lower of housing expenses, parsonage/housing allowance or fair rental value plus utilities.  The second box amount (qualified expenses) cannot exceed the first box amount.  However, if the amount in box 1 exceeds box 2, that difference is taxable as wages.   

Topic  417 and Publication 517 provide more detailed information.