?It is almost always better to own your own home than to live in a church-owned residence. By owning your own home, the pastor (1) can build up equity in the house, which can be realized upon sale of the home; and (2) deduct home mortgage interest and real estate taxes on your tax return, which provides the unique tax advantage of taking a deduction for something never included in income.
For some, having a parsonage is a true gift. Our first appointment was to a wealthy suburb of a large city. Having just finished school, we had no cash available for a down payment on a home. Three years after moving there, we were on our way to the next appointment. In this situation, a parsonage provided an ideal solution. We would have been unable to purchase a home in this affluent area even if we had had a down payment; and selling a home within three years would likely have created a loss, rather than equity, for us.
For other clergy, however, a parsonage feels like a death sentence. The home is too small for the family, too close to the church, too open to parishioners who (rightly) feel that they own the parsonage, too old, and too in need of major repairs. Some pastors find themselves in a situation where their personal financial condition would permit the purchase of a home, but the church owns a parsonage. These pastors feel keenly that the opportunity to be building equity in a home is slipping away, and they worry about where they will live when they retire.
Homeownership is the largest investment that most Americans make. Most experts agree that buying a home is generally a wise investment, barring economic downturn. When the church owns the home, the church is making the investment and building up the equity. Churches that provide parsonages generally pay lower salaries to their ministers, so it could be said that the church is financing its real estate investment by paying the minister less. Since real estate investment is not part of the mission of most churches, one could argue that this arrangement is completely wrong.
Nationwide, the use of parsonages is declining; and the trend is toward clergy owning their own homes, with one study indicating that only 32 percent of pastors live in a parsonage. If it makes financial sense for you to purchase a home but the church owns a parsonage, consider discussing the matter with the church. As a solution, some churches choose to rent the parsonage and use the cash received from renting to provide a housing allowance to the pastor. This presents tax issues for the church, since the church must report and pay taxes on the net rental income.
Other churches choose to sell the parsonage and place the proceeds from the sale in an investment account. The income earned on the proceeds can go toward providing a housing allowance to the pastor. With both of these approaches, the cost to the church of providing a housing allowance should be offset, at least partially, by income generated from the existing parsonage.
If it makes no financial sense for you to purchase a home and you are living in the parsonage, there is one final consideration. Since the church is building up the equity if it owns the parsonage, some argue that the church should pay an equity allowance to the clergyperson to replace this lost equity. This type of arrangement costs the church additional money and results in additional taxable income to the pastor, unless placed in a tax-exempt retirement plan. According to tax attorney J. David Epstein, if a tax-exempt retirement plan is used, “the money builds up tax free and is available to the minister on retirement to buy a home, or for any other purpose, and is taxable when the money is taken out at retirement.”
A final strategic consideration in the area of housing is the amount of allowance to designate. It is better to have the church designate too much to cover housing than to designate too little. Designating too much merely means that the excess must be added back into income when preparing the tax return. Designating too little will result in income tax being paid unnecessarily.

Excerpted with permission from Ministry and Money: A Practical Guide for Pastors by Janet T. Jamieson and Philip D. Jamieson, published in 2009 from Westminster John Knox Press.

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