Can I still deduct mortgage interest and property taxes if I pay them with my housing allowance?
Reviewed by Paul McWilliams, CKA®, financial advisor to pastors, churches, and ministry organizations.
Yes. This is often called the "double deduction" (or more accurately, a double benefit), and it is completely legal, expressly allowed under Section 265(a)(6) of the tax code and confirmed in IRS Publication 517.
Here is how it works. Suppose you pay $12,000 of mortgage interest and $4,000 of property taxes using money your church designated as tax-free housing allowance. You get two benefits from the same dollars:
- The housing allowance dollars used for those payments are excluded from your taxable income in the first place, and
- You may still deduct the mortgage interest and real estate taxes as itemized deductions on Schedule A, just like any other homeowner.
Publication 517 states it plainly: you may deduct home mortgage interest and real estate taxes paid on your home "even though you pay all or part of those expenses with funds you get through a tax-free rental or parsonage allowance."
Practical notes:
- This only helps if you itemize. With today's large standard deduction, many pastors take the standard deduction instead, in which case the housing allowance exclusion is still fully available on its own.
- Normal Schedule A limits still apply, such as the cap on state and local tax (SALT) deductions.
- The double benefit applies specifically to mortgage interest and property taxes. Other housing expenses (utilities, repairs, furnishings) are not separately deductible; their benefit comes only through the allowance exclusion.