Tax Information: What Tax Deductions Are Available To A Military Family?

As a result of the Military Family Tax Relief Act of 2003, a number of benefits became available to military personnel. Here are the details.

The Military Family Tax Relief Act of 2003, which was signed into law on November 11, 2003 offers a number of significant changes benefiting individuals and families affiliated with the U.S. military. These benefits include an increase in the death benefit, tax relief on the sale of a home, reimbursement for certain travel expenses, filing extensions, academic penalty waivers, and dependent care assistance. Here's what all this means to you.

Death Benefits

The death gratuity benefit - that is, the money paid to survivors of an individual who is killed in the line of duty - has been increased from $6000 to $12,000. This increase will cover anyone who was killed in combat or other qualified situations after September 10, 2001. Further, the entire amount is tax exempt, as opposed to stipulations in the previous law, which only exempted $3000 from tax. To take advantage of this exemption, the taxpayer must write the term "Military Family Tax Relief Act" on Form 1040X using red ink. Note that amended returns should be filed, as this law is retroactive.

Exclusion of Tax on Home Sales

This act corrects an oversight in the tax law that had excluded members of the military and their families from the five-year residency requirement necessary to exclude capital gains taxes from the sale of the principal residence. In the past, a homeowner must have lived in the home for a minimum of two of the five years prior to the sale of the house. There were provisions in the law, however, that offered some exclusions if the move were precipitated by work. Moves necessitated for military reasons had been excluded.



The 2003 legislation has corrected this and is retroactive to sales after May 6, 1997. Now, moves that are due to military relocation are allowed the same exclusions. As in the case with the death benefit, qualified military personnel should file form 1040X, noting "Military Family Tax Relief Act" in red on the form.

Travel Deductions

This act qualifies all unreimbursed travel expenses incurred when travel in excess of one hundred miles is required. This covers persons traveling to drills, meetings, training exercises, and summer camps. This deduction includes meals, lodging and transportation expenses, and is based on the rates applied to federal employees. Further, military personnel are no longer required to itemize deductions in order to receive this benefit, as these expenses are now considered "over the line" deductions.

Dept. of Defense Homeowners Assistance Program

Historically, the Department of Defense has compensated military personnel who are homeowners and who experience a loss in the value of their homes when a military base is downsized or closed. This benefit had been taxed previously, but the Military Family Tax Relief Act of 2003 eliminates the tax on this payment, which is now treated as a full fringe benefit.

Combat Zone Extensions Now Include Contingency Operations

Filing and payment extensions previously granted only to those serving in combat zones have been extended to all military personnel serving in what areas considered to be "contingency operations" by the secretary of Defense. All personnel serving in Operation Iraqi Freedom and Operation Enduring Freedom now qualify for these extensions. The secretary of Defense can add additional zones to this list as required.

Dependent Care Assistance Programs

All military childcare and other dependent care assistance programs are now considered tax exempt. This exemption covers tax years from 2003 forward.

Military Academy Tax Penalty

In the past, there was a ten percent tax on any payments that were received from a Qualified Tuition Program or Coverdell Education Savings Account that were not used to cover expenses for persons attending any U.S. military educational institution. In other words, if you did not use the money to attend school, the portion not used was taxed at ten percent. The tax act eliminates this penalty. This applies to the Naval Academy, the Air Force Academy, the Coast Guard Academy, West Point, and the Merchant Marine Academy and covers tax years after 2002.

Members of the military and their families should always consult with a tax professional to ensure that they are getting all of their allowable benefits. In order to fully benefit from this and other tax bills, there are a number of different forms that must be used. It is easy to miss stipulations and exclusions. Additional laws may have been passed as well, and a tax consultant will be fully versed on all applicable laws.

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