WASHINGTON –  Yesterday, the House of Representatives unanimously passed the final version of legislation – H.R. 3365 – delivering tax relief to the men and women serving in America’s Armed Forces and their families.  The House had passed similar legislation multiple times since July 2002.  Because the Senate passed this legislation earlier in the week, the latest House action clears the way for the bill to proceed to President Bush to be signed into law.

In addition to making needed improvements to tax law that applies to military families, the legislation also extends the same kind of income and estate tax relief that applied to victims of the September 11 terrorist attacks to astronauts who lose their lives in the line of duty, including Racine’s Laurel Clark and her colleagues on the shuttle Columbia. 

“It is past time for us to fix the tax code for our troops who risk their lives to defend our freedom,” Ryan said.  “Finally, it is going to happen.  These improvements will make tax law fairer for those who serve our country in the military and their families – and for the families of astronauts like Racine’s Laurel Clark, who gave her life in the line of duty.”

The following are among the highlights of H.R. 3365:

·        Capital Gain Exclusion for Home Sales – Under current law, individuals may exclude up to $250,000 ($500,000 for married couples) of gain from the sale of a home if they resided in the home for two of the five years preceding the sale.  The bill allows military and Foreign Service personnel to ignore (for up to ten years) the time transferred away from home on official extended duty for purposes of determining the two-out-of-five-year rule.

·        Tax-free Treatment of Death Gratuity Benefits – Under current law, survivors of members of the military receive a $6,000 death gratuity payment, but only half of it is tax-free.  The bill doubles the death gratuity payment to $12,000 and provides that the full payment is tax-free.

·        Tax-free Treatment of Homeowners’ Assistance Program (HAP) Payments – Under current law, members of the Armed Forces can receive payments under HAP to compensate them for a drop in home values resulting from military base closures or realignments.  These payments are taxed as compensation.  The bill provides that these payments are tax-free.

·        Extend Combat Zone Filing Rules to Contingency Operations – Under current law, several deadlines under the tax code (such as filing tax returns and making tax payments) are extended for certain individuals serving in a combat zone during a period of combatant activities.  The bill applies these deadline extension rules to individuals serving in “contingency operations” (in other words, military operations designated by the U.S. Secretary of Defense in which personnel are or may become involved in military actions during a war or national emergency declared by the President or Congress.)

·        Tax-free Treatment of Dependent Care Benefits – Clarifies that dependent care assistance provided under a military dependent care assistance program is tax-free.

·        Above-the-line Deduction for Overnight Travel Expenses of Military Reservists – Under current law, reservists who itemize their expenses may deduct unreimbursed travel expenses to the extent these expenses exceed two percent of adjusted gross income.  The bill provides an above-the-line deduction for overnight travel expenses incurred more than 100 miles away from home (including meals, transportation and lodging.)

·        Extension of Victims’ Tax Relief to Astronauts Who Die on Space Missions – The bill extends the income and estate tax relief provisions of the Victims of Terrorism Tax Relief Act of 2002 to astronauts who lose their lives in the line of duty. 

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