Retired Clergy Taxation Guidelines and Exclusions

1. Clergy Taxes!?!?

2. Taxes – Yes you still have to pay even if retired!

3. “Double Dip” • Clergy can potentially deduct total qualified mortgage interest and real estate taxes on Schedule A, even if used in housing exclusion calculation.

4. Housing Exclusion Applies to Distributions from Denominational Plan • At annual conference each year a vote is taken to allow up to 100% of the pension payments received from plans authorized under The Book of Discipline of The United Methodist Church, be designated as a rental/housing allowance for each such Clergyperson.

5. Retired Clergy housing differences The exclusion is limited by the LESSER of: • Pension received from the United Methodist Church • Total Expended to provide a home • Fair rental value of home, including furnishings and utilities.

6. What can be included in housing expenses? • Everything necessary to provide a home EXCEPT: • - Food • - Clothing • - Personal hygiene items • - Servants – i.e. house cleaner but gardener is okay

7. Examples of Qualified Expenses to Provide a Home • Rent, 100% of mortgage payments, down payments • Property taxes • Furnishings, including appliances and electronics • Household maintenance items for cleaning, lighting • Lawn care and landscaping • Insurance for home and furnishings • Improvements, repairs and maintenance • Utilities – gas, electric, sewer, water, garbage, internet/cable • Home Owners Assoc dues

8. Example • Pension Received $50,000 • Total expended to provide a home $30,000 • Fair Rental Value of Home, furnishings and Utilities $32,000 How much can be excluded from Pension? What would be the Taxable Pension amount?

9. Example • Pension Received $30,000 • Total expended to provide a home $35,000 • Fair Rental Value of Home, furnishings and Utilities $25,000 How much can be excluded from Pension? What would be the Taxable Pension amount?

10. Example • Pension Received $30,000 • Total expended to provide a home $35,000 • Fair Rental Value of Home, furnishings and Utilities $35,000 How much can be excluded from Pension? What would be the Taxable Pension amount?

11. Remember your housing exclusion is NOT subject to Self-employment taxes since you are retired!

12. Other Issues: • Social Security • Required Minimum Distributions • Scams • Spending Buddies • Power of Attorney for Financial Needs • Power of Attorney for Health Care • Great resource “The Other Talk” by Tim Prosch

13. Donation of Required Minimum Distributions (RMD) • Donations of RMD when 70 ½ can be made directly to a charity • No deduction of donation but distribution is not taxable • May result in lower taxable income, or lower taxability of Social Security.

14. IRS PHONE CALLS • PLEASE, PLEASE, PLEASE Let your family, friends, and church members know that the IRS does not make phone calls without first sending a letter to the taxpayer. In addition the IRS will NEVER request payment over the phone. • Please report any call like this to the IRS scam hotline.

15. Thank You for being a part of this church that I love so much. Your service has been appreciated!