Minister's housing allowance and no mortgage

[huapala07]

I've been a credentialed minister for five years now, but didn't really know the benefits of the minister's housing allowance until recently.  The problem is that I paid off my mortgage already.  Besides the normal expenses I can put on there still (e.g., home insurance, utilities, furnishings, etc), what else should I put on there to maximize benefit outside of the mortgage?

My wife and I have always wanted to put a fence up, but we couldn't afford it.  We still can't afford it, but if I can find out the exact property lines, I could probably put it up myself and afford it while excluding the fence toward the housing allowance.  I just upgraded my internet as well since I can get it excluded.  I'm just afraid that the decision to pay off the mortgage early is going to severely lower the benefit of the housing allowance. 

Could anyone advise me on what else I could exclude to maximize my tax benefit?  Thank you.

EDIT: For clarity, I have a set income because I work at a religious private educational institution, so I'm not asking for more money by asking for a housing allowance.  Whatever I exclude will come out of my regular salary as housing allowance, leaving the rest as taxable income.  Since I have to prove legitimate spending in my tax return, I can't illegally use the system. 

[Chrissy]

You'd have to crunch the numbers on this, but is it worth it to take a cash-out refinance?  What about a HELOC?

[shelivesthedream]

I might have got the wrong end of the stick here, but I'm reading this as a religious minister trying to cheat the system - unethical much? I assume the housing allowance is for legitimately incurred housing expenses (much like self-employment tax deductions are for legitimately incurred business expenses). If it's a real housing expense and not just a luxury/aesthetic thing (and a fence sounds like one) then put it on. If it's not, then you ought to get an icky feeling that you hope no one finds out - well done, you have a conscience - and you don't do it. It's about real incurred expenses, not clawing as much money out of the church as you can.

If I have got this wrong, do please forgive me.

[Retired To Win]

Out here in the rural Virginia boonies, an appointment as a church minister comes with housing, as opposed to a housing allowance.  The church not only provides the (usually) house but takes care of all its operational costs.  This may explain why a minister's modest salary around here ($30K plus-or-minus) actually stretches quite a bit.  Not to mention that the post also comes with an old fashioned pension.

[Chrissy]

I might have got the wrong end of the stick here, but I'm reading this as a religious minister trying to cheat the system - unethical much? I assume the housing allowance is for legitimately incurred housing expenses (much like self-employment tax deductions are for legitimately incurred business expenses). If it's a real housing expense and not just a luxury/aesthetic thing (and a fence sounds like one) then put it on. If it's not, then you ought to get an icky feeling that you hope no one finds out - well done, you have a conscience - and you don't do it. It's about real incurred expenses, not clawing as much money out of the church as you can.

If I have got this wrong, do please forgive me.

I didn't see anything that felt like cheating, but this might be a subjective issue.  The way I see it, the housing allowance is part of the compensation.  If the minister can move the home equity into some sort of investment(s), or build a fence, in order to make full use of the housing allowance, I don't see that as unethical.  It seems like from the original post that the allowance has rules about what counts toward the benefit.

It's sort of like the vacation issue.  Being paid for days of rest is part of a compensation package, and negotiable as such, yet some people (including managers) feel it's unethical to take ANY paid vacation.

[NICE!]

I might have got the wrong end of the stick here, but I'm reading this as a religious minister trying to cheat the system - unethical much? I assume the housing allowance is for legitimately incurred housing expenses (much like self-employment tax deductions are for legitimately incurred business expenses). If it's a real housing expense and not just a luxury/aesthetic thing (and a fence sounds like one) then put it on. If it's not, then you ought to get an icky feeling that you hope no one finds out - well done, you have a conscience - and you don't do it. It's about real incurred expenses, not clawing as much money out of the church as you can.

If I have got this wrong, do please forgive me.

This might be a UK vs US tax system issue. I don't see anything nefarious. The US has a ton of tax breaks for religious organizations and employees.

[huapala07]

Sorry if it seemed unethical.  I'm not asking for ways to cheat the system.  I'm trying to find items that can be legitimately excluded.  From what I've read, anything that is spent on the house can be excluded.  We've always wanted a fence, especially since we have little children, and since that is a valid item that can be excluded, I'm looking into getting them.  It's just that I don't know everything that can be legally covered under the tax benefit. 

Once again, I'm not trying to cheat the system.  I'm just trying to get enough info to maximize my tax benefit.  If I wasn't clear, my apologies

[huapala07]

You'd have to crunch the numbers on this, but is it worth it to take a cash-out refinance?  What about a HELOC?

HELOC was interesting.  My dad always told me to get a HELOC, and I found one with a good rate of around 3.5% (which had been my mortgage rate - my wife wanted us to pay it off fast though).  However, I can only exclude amounts of the HELOC that goes toward home improvement.  For example, I can't use part of that to buy a fence and then use the rest to buy a car.

[Chrissy]

What about a cash-out refinance then?  Just take on enough of a mortgage to get the full benefit, and put the cash into investments.  I'm betting that if you take out a small mortgage, the housing allowance will cover the full amount of the interest on the loan.  Your payments would be you paying yourself back at 0% while the money earns it's keep in the markets (invest conservatively, though).

[PJ]

I didn't see anything that felt like cheating, but this might be a subjective issue.  The way I see it, the housing allowance is part of the compensation.  If the minister can move the home equity into some sort of investment(s), or build a fence, in order to make full use of the housing allowance, I don't see that as unethical.  It seems like from the original post that the allowance has rules about what counts toward the benefit.

+1

I'm also a minister (Anglican, in Canada - equivalent to Episcopal in the U.S.).

Our compensation package is broken into two parts - stipend, and housing.  The stipend is relatively low, because the value of the provided housing (a rectory to live in, or a housing allowance) is quite high.  Each parish is supposed to have available a rectory, and that rectory has to meet certain criteria in terms of # of bedrooms, etc.  This means that parishes won't need to choose their minister based on size of family, or ministers choose based on size of house.  However, there's been a shift, and more clergy are wanting to get into the housing market, so they don't retire with no place to live.  So even if a parish has a rectory, the minister can negotiate to get a housing allowance instead, in which case the parish tends to rent out the rectory to compensate.  I chose that route, and am renting my own place that is a better fit for my situation.  But even if I did purchase my house, I would still be entitled to the housing allowance after my mortgage was paid off, because it's part of my compensation package.

Also, I wasn't clear if the OP was asking about the housing allowance received from the church, or about tax deductions? 

The housing allowance portion of my compensation is un-taxed, up to a certain percentage of my total salary.  Being credentialed is not the only criteria to receive this benefit, you have to be working in and responsible for the care of a parish, and I receive a letter from my Diocese each year to provide to Revenue Canada, confirming this is the case.  Assistant clergy, as long as they are in parish ministry, are also eligible.  As I don't own a home, I'm not sure what happens if I don't have the offsetting expenses, or what offsetting expenses are allowed in the view of Revenue Canada.  I will look forward to finding that out some day! 

[huapala07]

What about a cash-out refinance then?  Just take on enough of a mortgage to get the full benefit, and put the cash into investments.  I'm betting that if you take out a small mortgage, the housing allowance will cover the full amount of the interest on the loan.  Your payments would be you paying yourself back at 0% while the money earns it's keep in the markets (invest conservatively, though).

This sounds like a good idea... I'll have to explore the legality and the ethics of it.  Thank you for the idea.

[pbkmaine]

 https://www.clergytaxnet.com/Clergy%20Tax%20Facts/housing.htm
You are talking about the parsonage allowance. You are right; it can be a useful tool. Hope the link above helps.