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  • Writer's pictureMichelle R Brown

Should your Church Loan the Pastor the Down Payment for their New Home?

Updated: Mar 27, 2023

This is an interesting topic. Churches as a whole are generous and want to help out their ministers. Especially if they have been without a Pastor for a long time and they have finally found THE ONE! They are uber-excited and can't wait for him to start. The problem is, the current house hasn't sold and they don't have the money for the down payment for their new house in the new area and they have found the PERFECT home for them and time is running out! So, of course, the church wants to help the new Pastor out, so they offer to loan the Pastor the money for the down payment. Is this a good idea and wise stewardship?


The IRS gives clear guidance on this subject. Let's dig in and see what they have to say.


Treasury Regulation 1.782-5T addresses this topic. I won't bore you with all the legal jargon, but I will put here what I feel will be the most beneficial parts to you. If you enjoy reading Tax Code have at it!


Employee-relocation loans -

(i) Mortgage loans. In the case of a compensation-related loan to an employee, where such loan is secured by a mortgage on the new principal residence (within the meaning of section 217 and the regulations thereunder) of the employee, acquired in connection with the transfer of that employee to a new principal place of work (which meets the requirements in section 217(c) and the regulations thereunder), the loan will be exempt from section 7872 if the following conditions are satisfied:

(A) The loan is a demand loan or is a term loan the benefits of the interest arrangements of which are not transferable by the employee and are conditioned on the future performance of substantial services by the employee;

(B) The employee certifies to the employer that the employee reasonably expects to be entitled to and will itemize deductions for each year the loan is outstanding; and

(C) The loan agreement requires that the loan proceeds be used only to purchase the new principal residence of the employee.

Treasury Regulation 1.7872-5T(c)(1) (underlining added by me for emphasis)


So let's say that Pastor Joe gets a job offer in KY and he currently lives in Texas. His new position begins December 1st, and it's already November 15th and his current house still hasn't sold. The perfect house came on the market today and it's the PERFECT home for Joe and his growing family. Since he hasn't sold his current home yet, his family doesn't have the funds for the down payment. The church sympathizes with the situation and doesn't want the Pastor and his family to miss out on the house, so they decide that since the funds were available in the church savings account, to loan Pastor Joe the $50,000 needed for the down payment at either zero percent interest or another below market rate. What does the church AND the Pastor need to do to make sure they qualify for the Employee Relocation Loan exemption described above?


  1. The Pastor needs to sign a promissory note to the church for the $50,000 loaned to him that is secured by the mortgage on the new home.

  2. Specific terms need to be in the agreement as follows:

a. The loan agreement is NOT transferrable by the Pastor

b. The loan agreement is contingent upon the Pastor's continued employment and substantial services to the loaning church

c. The Pastor must certify that they qualify for and intend to Itemize their deductions on their annual Form 1040 filing instead of taking the Standard Deduction

d. The Pastor agrees that the loan proceeds will be used ONLY for the purchase of a new principal residence (no vacation home Pastor Joe ;-) )


If the above terms are not met, and the church loans the Pastor funds for a down payment, then the funds are considered TAXABLE INCOME to the Minister. The church AND possibly members of the church board who approved the loan may also be subject to sanctions and excise taxes from the IRS if they do not properly report the loan on the minister's W-2 as taxable income.


As you can see, EVERYTHING to do with church finances and especially clergy compensation has some type of tax affect. Please always seek out sound tax advice before making decisions that could put your ministers and/or your church at risk from penalties from the IRS.


Until next time....


Keep representing Him well.


Michelle R Brown, EA

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