It is pretty common for a pastor to have an office in their home. They need a place where they can think, study, sermonize, and write. When your home is a parsonage, you normally don’t think of the expenses associated with maintaining a portion of your home as an work space. When the pastor owns their own home, that’s a different story. If a pastor has to set aside a room of their house for work, are the related expenses deductible?
The answer is typically “No.” That’s because employees no longer get to deduct unreimbursed work expenses. This change came in with the Trump Tax Cuts and is set to expire at the end of 2025. And pastors are typically employees of the church as they receive a W-2 instead of a 1099-NEC.
I have seen some pastors that serve a church and legitimately receive a 1099-NEC. In most cases, these pastors are basically professional interim pastors. They are contracted for usually 6-12 months and have a specific list of services to provide. They are not expected to necessarily take charge of the ship…just to keep it steady. If that’s the case, here’s what you can do to get the most bang for your buck:
- DESIGNATE HOUSING ALLOWANCE: Have the church board designate a portion of your paycheck for housing. This will reduce the amount reported on the 1099-NEC. You still need to have housing expenses to offset the designated amount. The designated portion isn’t subject to Federal Income Tax.
- ESTABLISH & MAINTAIN A HOME OFFICE: Determine a room or part of room that is only for work. Don’t use it as the Guest Room/Office/Storage room. Calculate the square footage of work space (length x width). Divide that square footage by the total square footage for the home.
- TRACK EXPENSES: Keep receipts of expenses for the home as a whole (utilities, mortgage payments) as well as for any tied directly to that work space (painting, flooring, fixtures, etc.). You also get to write off depreciation (purchase price including closing costs divided by 39).
This should reduce both your self-employment taxes as well as your income taxes. Not bad. One of the best resources for clergy tax and housing questions is The Pastor’s Wallet by Amy Artiga.
Useful Links
- Guidance from Pastor’s Wallet: https://pastorswallet.com/are-pastors-eligible-for-the-home-office-tax-deduction/
- Guidance from the IRS: https://www.irs.gov/newsroom/how-small-business-owners-can-deduct-their-home-office-from-their-taxes