Tax Update Blog: Permalink

« Previous · Tax Update Blog Home · Next »

PRESIDENT MARKS VETERANS DAY BY SIGNING MILITARY TAX RELIEF BILL

November 11, 2003

President Bush today signs the "Military Family Tax Relief Act of 2003" (HR 3365). One provision of the bill will allow Armed Forces personnel to claim refunds for as far back as 1997, in some cases.

Key provisions of the bill include:

Relief for residency requirements for home sale exclusion.

The tax law permits taxpayers to exclude from income gains from a principal residence; to qualify for the exclusion, taxpayers must use the sold dwelling as their principal residence for two of the five years preceding the sale.
HR 3365 permits taxpayers to exclude from the 5-year test any periods when they (or their spouses) are on "qualified official extended duty as a member of the uniformed services or in the Foreign Service of the United States." This includes deployments at least 50 miles away that are indefinite or over 90 days.

This provision is effective retroactively to 1997; a special one-year extension of the statute of limitations begins today, enabling qualifying taxpayers to amend returns for closed years to take advantage of this rule.

Death gratuity increased and made fully tax-free.

The death gratuity for service personnel killed on active duty is increased to $12,000, and made fully tax-free. It was $6,000, of which $3,000 was tax free.

Above-the-line deduction for overnight travel expenses of National Guard and Reserve members

Unreimbursed travel expenses of Guard and Reserve personnel will now be deductible whether or not the taxpayer itemizes when they are for trips to Guard or Reserve meetings over 100 miles away, if they require an overnight stay. The expenses will also fully deductible for alternative minimum tax (AMT). Under old rules these expenses were only deductible for itemizers, and only to the extent miscellaneous itemized deductions exceeded 2% of adjusted gross income; they were not deductible at all for AMT.

For further reading:

Explanation of the bill by the Congressional Joint Committee on Taxation (pdf file)

Text of the Bill (HR 3365)

Other Military Tax Provisions

The tax law provides other breaks that are unaffected by HR 3365:

EXTENSIONS are automatically granted for those serving in combat zones. The extensions to file returns and pay taxes run until 180 days after leaving the combat zone or 180 days after continuous hospitalization from combat zone injuries.

EXCLUSIONS. Armed forces personnel can exclude a number of items from their income:

-Active duty pay earned in any month served in a combat zone.

-Imminent danger/hostile fire pay and military pay earned while hospitalized as a result of wounds, disease or injury incurred in the combat zone.

-A reenlistment bonus if the voluntary extension or reenlistment occurs in a month served in combat zone.

-Pay for accrued leave earned in any month served in combat zone. (The Department of Defense must determine that the unused leave was earned during that period.)

-Pay received for duties as a member of the Armed Forces in clubs, messes, post and station theaters and other non- appropriated fund activities earned in a month served in a combat zone.

-Awards received for suggestions, inventions or scientific achievements because of a submission made in a month in a combat zone

The IRS has a web page that fully discusses special tax provisions for Armed Forces personnel.

IOWA TAX BREAKS FOR MILITARY PERSONNEL

Iowa follows federal rules for extensions and combat pay exclusions. Iowa is likely to adopt the provisions of HR 3365. Iowa already has deductions for reservist travel and fully excludes the death gratuity.

The Iowa Department of Revenue has a summary of Iowa rules for Armed Forces personnel here.

      Bookmark: del.icio.us • Digg • reddit