IRS Ministry Qualifications

• Tax deductions and other write-offs designed to aid the ministry can be applied only to clergy members who fall under Internal Revenue Service guidelines. A minister must be ordained, commissioned and a licensed member of a church; self-appointed ministers do not qualify. Qualifying ministers must conduct religious worship, minister to priestly duties and maintain all religious activities in their parish or congregation. These priestly duties and religious activities must be aligned with guidelines established by the minister's church or denomination.
  
  

Parsonage Allowance

• Members of the clergy usually receive a budgeted allowance for a rental property through their congregation. This is treated as taxable income unless the church or qualifying minister applies for the IRS parsonage allowance write-off for the ministry. Prior to claiming the deduction, the church must declare the rental property a residence and determine a definite amount of rent that will be paid, typically included in the church's fiscal budget.
  
  This tax credit also includes a deduction for the cost of utilities provided for the rental property. If the minister has to pay self-employment taxes as an independent contractor instead of income taxes as the designated minister to a congregation, this deduction does not apply.
  
  

Not Rented for Profit

• Landlords who provide rental properties to ministers without charging rental rates large enough to make a profit may qualify for a residential rental property tax credit through the IRS. Landlords who rent a property without making a profit can deduct all rental property expenses up to the total amount of rental income earned through the tenant. Nonprofit rental income qualifying for this deduction must be reported on line 21 of either IRS Form 1040 or Form 1040NR. Qualified rental property expenses that can be deducted through this credit include real estate taxes, casualty losses, mortgage interest and mortgage premiums.
  
  

Other Tax Tips

• Ministers who must pay self-employment taxes can exempt themselves from IRS tax rules if their church guidelines or individual religious concerns prohibit them from taking advantage of public insurance or other forms of government assistance. Exempt ministers do not pay Social Security or Medicare taxes and cannot take advantage of those programs either. Ministers who retire but still receive a parsonage allowance or other retirement benefits can continue to claim the parsonage allowance deduction through the IRS.