How to set your 2027 housing allowance.

Watch: the three numbers, in eighty seconds

Why this month, and not March

Your housing allowance for next year only exists once your board designates it, in writing, and it only applies to pay you receive after that vote. Designate it in December and it covers all of 2027. Designate it in February and January is gone. Not reduced. Gone. No amendment reaches backward.

So the last board meeting of the year is the one that decides your housing exclusion for the whole of next year. Most of us walk into that meeting with last year's number because we never had a better one. This guide is how to have a better one. It takes about fifteen minutes.

What's inside

1. The three numbers, and which one is yours
2. Number one: what the board designates
3. Number two: what you actually spend
4. Number three: what your home would rent for
5. Building the amount to ask for
6. The ask, and the resolution
7. Two mistakes that cost real money

1. The three numbers, and which one is yours

The amount of housing allowance you can exclude from income tax is capped at the lowest of three numbers:

• What your board designated, in advance, in writing.
• What you actually spent providing the home that year.
• The Fair Rental Value of the home, furnished, plus utilities.

Whichever is lowest is your ceiling. Most pastors know the first number. Some keep track of the second. Almost nobody measures the third, and the third is often the one that decides it. That matters in both directions, which we will come to.

2. Number one: what the board designates

This is the amount your church sets aside from your compensation as housing allowance, decided before the year starts and recorded somewhere official: a line in the minutes, or your employment agreement. If you do not know your number, this is the one question to go ask this week.

Here is the coaching most pastors never get: ask generously. A designation set too low quietly caps your whole year, and it cannot be raised for months already lived. A generous one is safe. Whatever you do not use is simply reported as taxable income when you file; your preparer lists it as excess allowance. But an amount the board never designated can never be excluded. Too low is the costly direction.

3. Number two: what you actually spend

Everything directly related to providing the home counts: mortgage payments (the whole payment, principal and interest) or rent, property taxes, insurance, utilities, repairs, furnishings, appliances, lawn care, the lot. The IRS publishes no item-by-item list; the standard is whether the expense provides the home. Food and household help are the only things specifically excluded.

For next year's number, you need an honest estimate, not a receipt pile. Take this year's spending and adjust it for what you know is coming: the roof, the furnace, the kitchen you have been putting off. Each of those is excludable in the year you pay for it, which is why the planned project belongs in the designation for the year you plan to do it.

Then, through the year, the receipts prove the number. That is what the iPhone app is for: photograph it in the parking lot and forget about it until February.

4. Number three: what your home would rent for

Fair Rental Value is what your home would rent for on the open market, furnished, with utilities paid. It is the number pastors are least equipped to produce and most likely to guess at, and it caps the exclusion no matter what the board designated or what you spent.

If your board designated more than the home would rent for, the extra is taxable income. If the home would rent for more than the board designated, you left exclusion on the table that you can never get back for that year. Either way the number is worth knowing before the meeting, not after.

A realtor's letter is one way to get it. ClergyTrak estimates it from real rental comparables near you, free once a year for planning, and documents it with a source packet when you need to stand behind it.

How Fair Rental Value is estimated →

5. Building the amount to ask for

Put the three numbers side by side. The designation should sit a little above the lower of the other two: your expected spending or your Fair Rental Value, whichever is less, plus a margin for the year the water heater dies. Ten to fifteen percent is a reasonable margin. Round up.

If your home's Fair Rental Value is the lower number, there is no benefit in designating far above it; the exclusion stops there. If your spending is the lower number and you have a project planned, build the project in. If you genuinely do not know your Fair Rental Value, that is the number to get this week, because it decides whether the other two matter.

6. The ask, and the resolution

You do not need to make a speech. One sentence to the board chair, a few weeks before the December meeting:

“For next year, I'd like the board to designate $______ of my salary as housing allowance, recorded in the minutes before January. If my actual housing costs come in lower, the unused portion is simply reported as taxable income. But if it's set too low, the months already paid are capped for good; an amendment can only help going forward.”

Then bring the resolution so nobody has to draft one at the table. It names the church, you, the amount and the year, and includes a continuing clause so a missed meeting some future December does not cost you a year.

Print the resolution for your board

Free, no account, one page. After the vote, record the date; a designation is a board action with a date, and the date is what the IRS looks for.

7. Two mistakes that cost real money

1. Carrying last year's number forward without looking. Spending changes, rents change, the mortgage gets paid off. A designation that was right three years ago is probably wrong now, in one direction or the other.
2. Treating the housing allowance as income-tax-free and stopping there. It is excluded from income tax. It still counts for self-employment tax, which nobody withholds for you. If that is news, read this next, before April does the explaining.

Disclaimer: This guide is general educational information for ministers of the gospel in the United States, current as of October 2026. It is not legal, tax, financial or accounting advice, and reading it does not create any professional relationship. Your numbers are yours; confirm them with a qualified tax professional. See IRS Publication 517.

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