For many years, a minister could include real estate taxes and mortgage interest in housing expenses for ministerial housing exclusion purposes. And, the same dollars were generally eligible for a deduction on Schedule A if the minister itemized deductions.
While the so-called double deduction is still available for ministers in 2018, tax reform has brought a couple of interesting implications:
Real estate taxes. For 2017, real estate taxes were includible for housing allowance exclusion purposes and deductible on Schedule A as itemized deductions.
For 2018, a minister may claim as an itemized deduction of up to $10,000 ($5,000 for married taxpayer filing a separate return) for the aggregate of 1) State and local property taxes and (2) state and local income taxes (or sales tax in lieu of income taxes). Thus, many ministers will have more than $10,000 of these combined taxes. In effect, either some of the property taxes or state and local income taxes will not be deductible. So, one could say that the new tax deduction limitation potentially minimizes the benefit of the real estate tax double deduction.
Home equity interest. For 2017, home equity interest, for secured notes, was deductible as interest expenses on Schedule A for ministers who itemized their deductions.
For 2018, home equity interest is no longer deductible even if the note is secured. So, while the home equity interest is still includible for housing allowance purposes if the proceeds were related to housing expenses, that portion of interest expense disappears because of tax reform’s change to Schedule A deductions.
So, while the minister’s double deduction is still alive and well, it was nicked a little by The Tax Cuts and Jobs Act of 2017.
For more information on Tax Reform and its implications for churches and nonprofits, please consider attending one of the free, in-person National Forums on Tax Reform and/or watching our free Tax Reform Webinar-on-Demand.