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Congress targets tax breaks for troops

March 28, 2003

New law could ease rules for capital gains tax on home sales for military

By Marcie Geffner
Inman News Freatures

Legislation passed by Congress, but not yet signed by President George W. Bush, would place men and women who are in the military in a stronger position to shelter home sale profits from federal income tax.

The Armed Forces Tax Fairness Act of 2003 would give military personnel more flexibility in the Internal Revenue Service rules that determine whether taxpayers can shelter $250,000 (or $500,000 for a married couple) of gain on the sale of their principal residence from federal capital gains tax liability.

Sen. Chuck Grassley, a Republican from Iowa and chairman of the Senate finance committee, and Sen. Max Baucus, a Democrat from Montana and ranking member of the Senate tax-writing committee, co-authored the legislation.

"The sad fact is that right now (enlisted men and women) don't get a fair shake under the federal tax code. They risk their lives. They shouldn't have to risk their finances, too," Grassley said. The Congressman is described on his Web site as "the only working family farmer in the U.S. Senate."

Approximately 3,500 reservists live in Montana, according to Baucus' Web site.

The Senate yesterday passed its version of the bill, S. 351, by a 97-0 vote. The House passed a similar bill, H.R. 1307.

The IRS code requires the taxpayer to live in his or her home for two of the last five years prior to the sale of the home to obtain the tax benefit. The legislation would allow military personnel to exclude home-sale capital gains even if they didn't meet the two-of-the-last-five-years occupancy test. Other requirements and restrictions would still apply.

If enacted, the law would allow military personnel taxpayers to "suspend" the five-year period whenever they were serving on "qualified official extended duty" as a member of the uniformed services or the U.S. Foreign Service. The five-year period could be extended for as long as an additional 10 years. "Qualified official extended duty" is defined to mean the taxpayer is serving at a duty station at least 50 miles away from his or her home or is residing in government quarters for at least 90 days or an indefinite period.

Grassley said the test of living in the home for two of the five yearsbefore it is sold isn't realistic for a lot of people who are serving in the military and are transferred frequently from one place to another.

The bill also would give military personnel other tax breaks in the general areas of travel expenses, child-care costs and scholarships. The whole package would cut military personnel taxes by $1.1 billion over 10 years, according to a statement from Grassley's Congressional office.

The Senate last year passed a similar bill, but the House didn't follow suit and the bill died when Congress adjourned.

This year's bill would be effective for the 2003 tax year if the House and Senate reconciled the differences between their bills and the President signed the legislation.

"I hope the Senate and House will quickly resolve the differences in their respective bills, allowing for final passage and getting these tax measures signed into law as soon as the military men and women serving our country now would be able to take advantage of this new tax fairness when they file their 2003 taxes next year," Grassley said.

Rep. William M. Thomas, a Republican from Central California, sponsored the House bill. Some 640,000 people live in Thomas' district, which encompasses California's mostly rural Kern and San Luis Obispo counties. Edwards Air Force Base and the Naval Air Warfare Center Weapons Division are located in Kern County, where defense is the third largest industry after agriculture and energy, according to the Congressman's Web site.

Military personnel should consult a professional tax advisor for details about how the law, if enacted, would apply to their own tax situation.

Copyright: Inman News Service

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