1040-US: Retired ministers and housing allowances

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Question

How do I enter housing allowances for a retired minister?

Answer

A retired minister may receive rent-free use of a home or a rental allowance in recognition of past services as a minister. The lesser of the designated allowance, the fair rental value of the home, or the actual expense of maintaining the home is excludable from income. The taxable amount of any retirement distribution is reduced by the amount of a designated housing allowance.

Enter X in the Ministerial pension with housing allowance field on Screen 1099R. Enter the gross distribution in Box 1, and the distribution code in Box 7, along with any other information from the Form 1099-R. Do not enter an amount in Box 2a, Taxable amount. On the corresponding Screen 1099R-2, complete these fields: Designated housing allowance, Actual housing expenses, and Fair rental value of housing, including utilities. The tax application calculates the excludable portion of the pension and automatically carries the taxable amount to Form 1040 line 16b. A statement prints with the return to detail the calculation. The taxable and non-taxable portion of the pension also carries to the Clergy Worksheet 1, lines 5a and 5b, to be included in the calculation of the percentage of tax-free income, if necessary.

If this calculation is not desired, enter the gross distribution in Box 1, the taxable amount in Box 2a, and leave the Ministerial pension with housing allowance field blank. Do not complete the data entry section Ministerial Pension with Housing Allowance on Screen 1099R-2. The taxpayer should have documentation supporting the expenses of providing a home, but does not need to submit the documentation to the IRS.

Related topic: Minister wages and church employee income FAQs (1040)

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