Can a pastor still claim a housing allowance exemption when their house is paid off?
The answer is yes. In this post I’ll share some strategies you can use, even when your home is paid off, to claim a housing allowance exemption.
Over the last few posts, we asked and discussed the question, “Which is better for pastors with a housing allowance: A 15-year mortgage or 30-year mortgage?”
The question that often arises next, especially for those who choose a 15-year mortgage, is “Can a pastor claim a housing allowance if the house is paid off?
The good news is that you can still claim a housing allowance exemption whenever your house is paid off. Since you’ll have no mortgage, your housing allowance will be based just on your utilities, taxes, insurance, and other related household costs.
Some pastors choose a 30-year mortgage over a 15-year one because their mortgage payments will provide them with a larger housing allowance over 30 years instead of 15. The bad news is that, by choosing a 30-year mortgage instead of a 15, they’ll also pay thousands more in interest for their house.
Personally, my goal is to get my house paid off as soon as possible without regard to my pastor’s housing allowance, which could be changed, limited or even eliminated in the near future.
But, if I did want to pay it off in 15 years AND find a way to maximize my housing allowance after my home was paid off, here’s what I’d do: Take out a home equity loan to pay for needed or desired home improvements.
Think about it – the average life expectancy of most roofs, furnaces, flooring and appliances is 10-15 years. So, why not pay off your mortgage in 15 years and then take out a home equity loan to make improvements that are needed or desired at that time?
You can replace your worn out flooring, appliances, or roof, or build a new deck, redo your landscaping, remodel the basement or build an addition.
Your home equity loan payments can count toward your housing allowance, to the extent that you used the loan for home repairs, improvements, and furnishings. And the interest on home equity loans is deductible to the extent that you use the loan for home repairs and improvements.
I think this is a great way to take advantage of the clergy housing allowance after the home is paid off. What do you think?
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