| New Tax Breaks for Military Personnel and Their Families |
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In response to the wars in Afghanistan and Iraq, Congress enacted the Military Family Tax Relief Act of 2003 to provide certain tax breaks for military personnel and their families. These new provisions exclude certain benefits and gains from income, thereby reducing tax liability.
Death Benefits Under the new law, the benefit paid to the families of deceased military personnel is doubled (from $6,000 to $12,000), and the whole amount is now tax-free. Under the prior law, only $3,000 of the benefit was exempt from taxation. Sale of Principal Residence Generally, when taxpayers sell their homes, they may exclude from income any gain from the sale provided that they have owned and used the home as a principal residence for two of the five years before the sale. However, military personnel often retain ownership of a home while away on duty but eventually sell it without returning to live in it, often failing the exclusion test. Under the Military Family Tax Relief Act, military personnel on qualified extended duty in the U.S. Armed Services or the Foreign Service may elect to suspend this five-year test period for up to 10 years of their duty time. A taxpayer is on qualified extended duty when at a duty station that is at least 50 miles from the sold home, or when living under orders in government housing for more than 90 days or for an indefinite period. Deduction for Overnight Travel Expenses of National Guard and Reserve Members If the taxpayer is a reservist who stays overnight more than 100 miles away from home while attending a drill or a meeting, he or she is entitled to deduct unreimbursed travel expenses, including transportation, meals, and lodging, as an above-the-line deduction. The advantage of an above-the-line deduction is that the taxpayer can benefit from it even he chooses not to itemize deductions. Combat Zone Extensions The Act has expanded the application of various extension grants for combat zone participants to file tax returns or to pay taxes to those serving in Contingency Operations, as designated by the Secretary of Defense. Dependent Care Assistance Programs Under the Act, the benefits from dependent care assistance programs for military personnel are excludable from income. Military Academy Attendees Generally, there is a 10 percent tax on payments from a Qualified Tuition Program or a Coverdell Education Savings Account that are not used for educational expenses. However, under the Act, this tax does not apply to attendees of the various federal military academies to the extent that the payments do not exceed the costs of advanced education. Copyright 2009 LexisNexis, a division of Reed Elsevier Inc. |