Religion & Beliefs

At-Home Church Means Big Tax Breaks

Last week I wrote about churches and synagogues being turned into homes. This week, homes are being turned into churches. A man in Lake Bluff, IL recently converted a portion of his house into a church, and then claimed an … Read More

By / July 24, 2008

Last week I wrote about churches and synagogues being turned into homes. This week, homes are being turned into churches.

A man in Lake Bluff, IL recently converted a portion of his house into a church, and then claimed an $80,000 break on his property taxes because of a little known church-and-state loophole called parsonage. George Michael (no, not that George Michael) has a $3 million home in Lake Bluff, complete with an electric lift for his wheelchair-bound wife. But Michael and his family still found it difficult to attend church services (specifically Armenian church services) that were handicap accessible. So Michael took an online course and became an official member of the clergy thanks to the Church of Spiritual Humanism. He then went about constructing a church in his home. Once the “church” was completed, Michael was able to ask for a huge discount on his property taxes. This discount is called parsonage.

Parsonage is the tax rule that allows clergy to exempt from their federal income taxes a portion of salary that's earmarked for housing costs. Nearly 100 years old, parsonage originated when many congregations provided housing to attract clergy to their communities. This exemption has broadened over the years to where today, clergy can exempt the annual rental value of their home from their taxable income, even if they own the home themselves. In 2002, the Ninth Circuit Court debated the constitutionality of parsonage. Because of that case, Congress passed the Clergy Housing Allowance Clarification Act of 2002, which President Bush signed into law. The act clarified the constitutionality of parsonage and also made clear that a parsonage allowance is now limited to the fair rental value of the home. (Previously, the parsonage value was determined using any one of three tests.)

Though Michael was initially challenged by the Lake County Board of Review, the Illinois Department of Revenue eventually found that Michael’s church is a real church (he provided photos of a church altar, the church's affidavit of organization from January 2007, church bylaws and copies of weekly church bulletins dating to December) and that he is eligible for a tax exemption.

Who says religion doesn’t pay?