Special Tax Breaks for Military Families: What You Need to Know
Did you know that military families have access to some sweet tax breaks that can really lighten their financial load? It’s true! While these benefits can be a bit tricky to navigate, they can lead to some significant savings. Let’s dive into what’s available for our service members and their families.
Keep Your State Residency
One of the perks of serving in the military is the flexibility with state residency. Thanks to the Servicemembers Civil Relief Act, your income tax is tied to your “state of legal residence,” rather than where you’re currently stationed. This means if you’re a resident of a state without an income tax—like Florida, Texas, or Washington—you can keep that tax break throughout your service. Talk about a win!
Tax-Exempt Allowances
You might have heard about allowances for housing and food that are exempt from taxes. That’s right! Most pay is taxable, but these allowances are not reported on your tax return. Just remember, you’ll need to keep track of these yourself since they won’t show up on your W-2 form. It’s like a little hidden treasure you get to keep for yourself.
Combat Zone Income Tax Exclusion
Now, here’s where it gets even more interesting. If you’re deployed in a combat zone, the income you earn during that time is tax-free. And get this—if you spend even a single day there, you can exclude your income for the entire month! This could cover basic pay, bonuses, and even student loan repayments. However, if you’re earning “hazard duty pay,” that still counts towards any contributions to a Roth IRA or might qualify you for tax credits.
Excluding Capital Gains When Selling Your Home
Selling your home is stressful enough without worrying about taxes, right? Typically, when you sell your primary residence, you could face capital gains taxes unless you meet certain conditions. For most folks, that means living in the home for two out of the last five years. But for military families, there’s a little leeway. You can “stop the clock” on that two-year rule if you’re away for extended duty, which gives you a shot at avoiding those pesky capital gains taxes. Just keep in mind that this grace period is limited to ten years.
So, there you have it—some key tax breaks for military families that can help save a decent chunk of change! If you’re looking for more financial tips tailored to your situation, check out more on our site or reach out to a certified financial planner who understands these military benefits.
