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Filing guidelines for military personnel

Tax breaks for military homeowners, parents

Soldiers who have to sell a home because they are redeployed get a break on any capital gains they might otherwise face because they didn't own the property very long.

Generally, when a homeowner lives in a personal residence two of the past five years, up to $250,000 (or $500,000 for married filers) of capital gains on the sale is tax-free. Some military homeowners have found the residency rule hard to meet and ended up owing taxes.

Thanks to the Military Family Tax Relief Act of 2003, such homeowners are exempt from the two-year requirement (for up to 10 years). This means they qualify for the full exclusion whenever they must move to fulfill service commitments.

The military relief bill also eases the tax bite on some other items. Housing assistance provided by the military to compensate for a drop in home values because of base closures or restructuring is no longer considered taxable income. Neither is child care or other eligible dependent care expenses provided under a military assistance program.

Civilian as well as military parents with a son or daughter heading to a service academy also can make use of savings from education savings accounts and qualified tuition programs without tax problems. Previously, distributions in these cases were subject to a 10 percent tax penalty, but military school appointments are now considered scholarships, exempting the account distributions from the penalty provision.

National Guard and Reserve personnel weren't forgotten. When these troops travel overnight for training, they can deduct travel and lodging costs even if they don't itemize deductions when they file. The tax break is reported directly on Form 1040 instead of Schedule A.

Getting tax help

Because of the complexities of taxes and military service, not to mention the newly passed laws, you may need clarification about your specific tax circumstances. Don't hesitate to talk with representatives of your base's finance office.

Servicemen and women stationed abroad also can get tax information from January through mid-June at some U.S. embassies and consulates.

Additional tax information and updates for members of the armed forces are available year-round at a special IRS Web page.

« Back to the Tax Guide main page.

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