Table of Contents
6 July 2022
TOPIC: Military tax
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In this blog, we are discussing some tax advantages you have for being in the military. If you’re someone in the army or used to serve in the past, this is a blog you don’t want to miss!
So let’s get started, shall we?
5. Family-Focused Military Tax Benefits
If your spouse travels with you whenever you are stationed at a new location, the last thing your spouse wants to worry about is taxes.
Thankfully our government passed a law that prevents new states you moved into from charging you and your spouse state taxes.
This is under the Military Spouses Residency Relief Act which only allows you to be charged state taxes for the state that is your legal residence.
Another incredible benefit of being in the military is most bases offer free tax preparation services.
If, for whatever reason, you cannot file a joint return with your spouse (due to military duty, injury, or sickness), then your spouse can apply for power of attorney.
Once your spouse does that, he or she can file taxes for both of you.
4. Educational Expenses
You can deduct work-related educational expenses as someone who works in the military.
Now, you must meet some criteria to use educational expenses as a military tax write-off.
The educational expense must be…
- Your employer or the law requires you to maintain your salary, status, or job.
- This education must also be tied to a real business purpose for your employer.
- Maintains or improves skills required to do your current job.
- Your education cannot be used to meet the minimum job requirements. It also cannot be used for starting a new business.
Note: In some cases, travel expenses associated with gaining this education can also be deducted—more on that below.
3. Moving For Military Duty
Our government understands how chaotic and unpredictable life can be in the Armed Forces. One moment you’re living in Texas, and the next, Colorado.
Suppose you’re on active duty and move because of a change of stations.
In that case, you are entitled to a deduction for unreimbursed moving expenses related to the travel.
You are entitled to use the cost of moving household and personal goods as a military tax-write off.
You are not allowed to deduct expenses related to travel overseas (if you are stationed there) or when traveling for personal reasons.
The appropriate time to write off travel expenses is when you are traveling away from your permanent duty station for longer than a day’s work.
The type of expenses you can write off include:
- Business phone calls
Note: A member of a reserve component of the Armed Forces who travel more than 100 miles away from home because of work can deduct their travel expenses as an adjustment to income.
2. Capital Gain Exclusion
One of the things you can expect when selling your home is the government wanting to collect a piece of the profit.
The tax you’ll pay will be based on the net profit of the sale.
For example, if you sell a house worth $400,000 and owe $100,000, then your taxes will be based on the remaining $300,000 profit.
After you pay off the mortgage and other expenses, whatever is left will be considered taxable.
Capital gain tax exclusion refers to the ability of military members to sell their primary residence without paying those capital gains taxes.
If you’re single, the exclusion is up to 250,000. If you’re married and filing jointly, the exclusions are up to 500,000.
Going back to our previous example, if you made a 300,000 net profit, you wouldn’t have to pay capital gains tax on that if you’re a married military member and filing together.
This also works if you decide to move from your primary residence, turn it into a rental property, and sell it later.
However, you have to, within a five-year time frame, at least live in that property for two years (24 months).
Now, as a military member, you can extend those five years by an additional ten years!
If you were told to move a lot during the five years (due to PCS) and didn’t have time to sell your home.
This extension can give you up to 15 years to sell your home and still receive the capital gains exclusion benefit.
Note: Partial Exclusion allows you to exclude a portion of your capital gains tax even if you didn’t live in the property for two years.
1. Income Exclusion
A member of the armed forces serving in a combat zone can exclude certain pay from their income.
This pay exclusion only applies for the months you served in the combat zone or were hospitalized due to wounds, disease, or injury in the combat zone.
This includes pay types:
- Active duty pay is earned every month you serve in the combat zone.
- A reenlistment bonus if the extension occurs during the month you serve in a combat zone.
- A portion of any student loan repayment made for the year.
- Imminent danger or hostile fire pay
- Pay for accrued leave earned for any month you served in a combat zone.
You only need to serve one day to qualify for an exclusion of an entire month. In some instances, services outside the combat zone can be eligible for this exclusion.
It depends on if the Department of Defense designates it in direct support of military operations in the combat zone.
Also, services outside the combat zone might qualify if the service puts you in danger, qualifying you for hostile fire or imminent danger pay.
Want to learn more about taxes?
We created a blog explaining the difference between tax deductions and tax credits.
If you haven’t read that blog, click the link below to dig in!