SELECTED PROVISIONS OF THE MILITARY FAMILY TAX RELIEF ACT OF 2003"

On November 11, 2003, President Bush signed the Military Family Tax Relief Act of 2003 (Military Tax Act).  This Act provides relief not only to members of the Armed Forces serving in Iraq and Afghanistan, but also members serving in the National Guard, the Military Reserve, and other military personnel. The following is a summary of selected items included in the Act.

Increased Death Benefits.  The Military Tax Act doubles the military death benefit from $6,000 to $12,000, effective for deaths after September 10, 2001.

Home-Sale Relief.  If you are in the military and you are transferred due to a military assignment more than 50 miles away from your home, under the new Act, you may suspend the 2 out of 5 year testing period for excluding the gain on the sale of your home (i.e., the $250,000 or $500,000 gain exclusion rule) for up to 10 years. This new rule is effective for sales or exchanges after May 6, 1997.  This generally means that if you meet the 2-year rule (or qualified for a pro ration of the 2-year rule) at the time you were placed on a qualified military assignment, you will continue to qualify for that exclusion while you are on that assignment for up to 10 years.  This new rule is available to members of the Army, Navy, Air Force, Marine Corps, Coast Guard, Commissioned Corps of the National Oceanic and Atmospheric Administration, Commissioned Corps of the Public Health Service, and the Foreign Service.  Tax Tip.    This tax relief is retroactive, so, if you have previously sold your house while in the military and you were on a qualified long-term assignment and paid tax on the gain on the sale of the house, please contact our office.  We will help you determine whether you are entitled to a tax refund. 

Tax Relief for Homeowners Assistance.  The Department of Defense operates a special program to assist military homeowners when military bases close and home values decline.  If you received a payment under this program after November 11, 2003, that payment is now tax free. 

National Guard and Reserve Travel.  If you are a member of the National Guard or Military Reserves, you may now take an above-the-line deduction for travel costs more than 100 miles from your home that requires you to stay overnight.  Before this change, these travel expenses were required to be itemized and subject to the 2% reduction rule.  Tax Tip.  This new rule applies to any amount paid or incurred for tax years starting after December 31, 2002.  If you qualify for these deductible travel expenses and failed to take them as an Aabove-the-line@ expense on your 2003 return, please call us.  We will assist you in amending your 2003 return.

Tax-Free Child Care Benefits.  Effective for tax years beginning after December 31, 2002, all child care benefits provided to military employees are excluded from income (civilians can only exclude up to $5,000 annually for employer-provided childcare).  Tax Tip.  This complete exclusion is available to all members of the Uniform Services, including the Army, Navy, Air Force, Marine Corps, Coast Guard, the Commissioned Corps of the National Oceanic and Atmospheric Administration, and the Commissioned Corps of the Public Health Service. 

Service Academy Appointments.  For tax years beginning after 2002, you may make distributions from  529 plans and Education Savings Accounts penalty free (but not income tax free), up to the amount of tuition, fees, etc. for attending military academies (Westpoint, Naval Academy, Air Force Academy, Coast Guard Academy, and Merchant Marine Academy).