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IRS regulations regarding housing allowances exclusion when the minister owns his/her home are as following
See IRS publication 517 -
If you own your home and you receive as part of your salary a housing or rental allowance, you may exclude from gross income the smallest of:
The amount actually used to provide a home,
The amount officially designated as a rental allowance, or
The fair rental value of the home, including furnishings, utilities, garage, etc.
So far - there is clear determination what exactly constitute "amount actually used to provide a home"...
Whether the loan amount is considered as "used to provide a home" - the loan repayment - both principal and interest will qualify.But if the loan is not considered as "used to provide a home" - neither principal nor interest part of payments woudl qualify as housing allowance.
Unfortunately - IRS Audit Technique Guide doesn't cover situation with personal loans
So - I assume - if audited - that might be a gray area.
The statute is here https://www.law.cornell.edu/uscode/text/26/107regulations are herehttps://www.law.cornell.edu/cfr/text/26/1.107-1As we see - there are no specifically mentioned terms "mortgage," loan," or "interest"It is clear for me that repayments for the loan which qualifies as a Home Acquisition Debt for mortgage deduction purposes may qualify for clergy housing allowances.That is true for personal loans when the dwelling is used as a collateral.If the dwelling is NOT used as a collateral for the loan - I bet the IRS agent in case of the audit will raise the issue and there is a risk that loan repayments could be disallowed as housing allowances.I personally believe - if you can justify that the loan proceeds were specifically used to purchase a home or for home improvements - loan re-payments may be classified as housing allowances - but we would need to be prepared to convince the auditor to agree.
I am well acquainted with pub517 and the law itself but this is as you say gray area which is why I was hoping someone might be familiar with test cases. The bank was not interested in financing a truly self built home (my wife and I did all the work) which is why some of it was financed with a personal loan. I have receipts from this period showing building costs $30k in excess of the original loan amount. It seem that this would be no different than home improvements made on a credit card. One would assume that when you actually paid the credit card those payments would be covered by the HA provision. One could not double dip however. Using the cost as part of your HA justification when the improvement was made and then again when the debt was paid. I am not doing that. We have recently been able to get an actual equity line as well. That is also related to the cost of construction and have records demonstrating that. The two debts together do not exceed the assessed value of the home. I didn't know if additional information changed your response. My sense is that if I have records I am probably okay, but I need to be prepared.
I agree with your assessments - when the statute and regulations are not specific - we are in gray area - and will mainly depends on the perception of the auditor.The most conservative auditor woudl likely use same rules as for mortgage interest deduction - with the only difference that the principal and escrow parts of payments are included into housing allowances.Specifically - I woudl NOT separate principal and interest parts of your payments as SAME determination applies - either both or neither qualify as housing allowances.Regarding mortgage loans - the IRS uses "90 days rule" - if the expense was paid within 90 days before or after the actual expense was paid - the loan could be considered as used to purchase or improvements.While there is no direct instructions - I think we may use that rule to justify housing allowances in your case.
But - again - the auditor might have a different interpretation - so you do need to be prepared - but I may not say that you will be OK - there still a risk that your position could be objected.
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