If you managed to pay off your home mortgage this year, congratulations! However, you may notice that you have a lot fewer expenses to claim for your housing allowance at the end of the year. With less housing expenses, you also have less income exempt from income tax, and your tax bill may go up at tax time.
You may be wondering, could I take out a new loan on my home and use the payments as a housing expense just like the old loan? Yes, it is possible to take out a new mortgage or a home equity loan to use as a housing allowance expense… however, here is a very important note to consider:
IRS will not consider loan repayments as a qualifying housing expense UNLESS the funds from the loan are used for direct housing-related expenses.
Here’s an example: If you took out a home-equity loan to help pay for your child’s college education, you could not use the monthly mortgage payments as an expense for the housing allowance. Since you spent the money on college education instead of direct housing expenses, it does not qualify for the housing allowance.
Do you have more questions about the housing allowance? Clergy Financial is here to help. With our Pro Advisor Support, we can offer one-time or ongoing answers to your tax questions. Visit our website at https://www.clergytaxnet.com/resources/proadvisor/ for more details and pricing.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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