Combating Your Tax Return – Part I: A Brief Overview of Special Tax Provisions for Members of the U.S. Armed ForcesPosted on February 9 2010 by admin
I was recently approached by a friend, who is currently serving in the Navy, for help in the filing of his tax return. Before I could acquiesce, I needed to read up on the many special tax rules relating to members of the military. While not all-inclusive, below are some of these provisions:
- Of the many different types of pay and allowances received by a member of the U.S. Armed Forces, several types are not taxable. The Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) are two allowances excluded from income tax. In addition, a member is still able to deduct home mortgage interest and real estate taxes even if these expenses are paid with the member’s nontaxable BAH.
- Many types of pay that would otherwise be included as taxable income are excluded if earned while a member is serving in a combat zone. “Combat zones” are specific areas designated by the President of the United States in which the U.S. Armed Forces are engaging or have engaged in combat. The word “earned” is important as the exclusion can apply to income received once the member is no longer serving in the combat zone. For example, if a member receives pay from accrued leave that was earned while serving in a combat zone it is not taxable. If a member reenlists while on duty in a combat zone and his or her reenlistment bonus is not received until the member has completed duty in said combat zone, it is also not taxable.
- Generally, taxpayers are allowed to exclude up to $250,000 ($500,000 if married filing a joint return) of gain on the sale of a personal residence. This exclusion is allowed if the taxpayer owned and lived in the residence for at least two of the five years prior to the date of sale. Members of the Armed Forces are allowed to suspend this five year test period while they are serving on qualified official extended duty, that is are stationed at least 50 miles away from their home or are required live in Government quarters for a period of more than 90 days.
Stay tuned for Part II of “Combating Your Tax Return”…
Amanda Brown, CPA
There is nothing more complex than the world of taxes. We know this and yet we chose careers where we face these issues everyday. We get questions day in and day out about new tax laws, forms and news items and how they affect everyday people and businesses. Well, here at Henry & Horne, LLP we have set out to do what we do best; help everyday people understand what is going on in the world of state, local, federal, estate and international taxation. We will provide these weekly posts and we encourage you to give us feedback on those posts as well as letting us know what else you would like to know more about. Welcome to "Tax Insights." We hope you find this blog informative and worthy of your time.
Before posting a comment on a blog post please be aware that we do not give free tax advice to non-clients by email, comment response, or phone. Thank you!
- Temporary Regulations Provide Guidance on Form 5471
- New Like-Kind Exchange Reporting Required for California (IRC 1031)
- Survey Suggests Taxpayers are Overconfident in Their Tax Prep Skills
- Timing Rules for SEPs and SIMPLE-IRAs Part II
- Timing Rules for SEPs and SIMPLE-IRAs Part I
- Are You an Identity Theft Victim?
- Supreme Court Decides Severance Pay is Subject to FICA Tax
- Mamma Mia! Who Can Deduct That?
- IRS Releases New Requirements to Claim the Earned Income Tax Credit
- AMT Facts with Exemption Amounts Updated