Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.
Tuesday, November 26, 2013
WHAT’S THE BUZZ, TELL ME WHAT’S A HAPPENNIN’ - TUESDAY EDITION
Freedom From Religion Foundation has won a stunning victory in the United
States District Court For The Western District Of Wisconsin where Judge Barbara
Crabb has ruled that a substantial tax benefit enjoyed by many thousands of
clergy – ministers, priests, rabbis, imams and others – is unconstitutional.”
The clergy have historically been able to
“double dip”.The housing allowance they
receive from their congregation is not subject to federal, and often state,
income tax (although it is subject to self-employment tax), and they can deduct
real estate taxes and mortgage interest paid on Schedule A, even though the
taxes and mortgage payments are “reimbursed” by the congregation via the
In the past, as Peter pointed out, most
congregations owned the “parsonage”, usually next door to the church, and
provided free housing to the pastor and his family.This was certainly the case in the Methodist
Church, where I was raised, because the pastor was assigned to a particular
congregation for a limited number of years, moving from parish to parish
several times during his career.However
today it is more common for the pastor to purchase a family residence and
receive a cash housing allowance.
I used to do several Protestant ministers,
mostly Lutheran, but am down to only one.This decision will substantially increase his tax liability – more than
the “few thousand dollars” Peter
suggests.I assume he must now include
in taxable income the cash housing allowance he receives, although he would
still be able to deduct his real estate taxes and mortgage interest.
For me, the problem, if any, was in the
ability to deduct the taxes and interest, which were, in effect, “reimbursed”
by the employer.But I can see that the
exemption of the cash housing allowance was a very unique tax benefit
specifically for the clergy, and possibly a violation of the separation of
church and state.
I do see some logic for the original
exemption of the value of the free housing in the days of the parsonage, as the
pastor was required to live there as a condition of employment “for the benefit
of the employer”.