MARINE CORPS AIR STATION IWAKUNI, Japan -- On Nov. 11 2003, the President signed the "Military Family Tax Relief Act of 2003" in to law. This Act included several favorable tax provisions for service members.
One provision exempts "extended official duty" time from the five-year residence requirement that qualifies taxpayers for a capital gains exclusion from the sale of a principal residence, said Rear Adm. Michael F. Lohr, judge advocate general of the Navy. This provision requires that the service member either relocate to a duty station 50 miles or more from the qualifying residence or be under orders to reside in government quarters.
The "capital gains exclusion" is the $250,000 or $500,000 (filing jointly) that is excluded from the owner's income if they have owned and used the principle residence at least two out of five years preceding the sale, said 1st Lt. Michael J. Rod, Station legal assistance officer.
"This provision is all that we could have hoped for, with an indefinite suspension period, government quarters exception, retroactive application, and ability to seek a refund well beyond the normal statute of limitations," said Lohr.
The act also increases the death gratuity benefit to survivors of service members killed in the line of duty after Sept. 10, 2001 from $6,000 to $12,000. The benefit will be entirely tax-free.
Another provision is a gross-income deduction of up to $1,500 for overnight travel expenses for National Guard and Reserve members. Transportation, meals and lodging expenses may be deducted for reserve meetings more than 100 miles away from home.
The act also expands combat zone filing rules to contingency operations designated by the Secretary of Defense. "This eliminates some of the complications relating to seeking tax advantages for military operations not formally designated as combat zones," said Lohr.
This is very similar to the tax provision that suspends the period of time for performing various acts for any individual serving in the U.S. Armed Forces in an area designated as a "combat zone" during the period of combatant activities, said Rod.