WASHINGTON – State Department spokesman Bill Covey said he is proud of his 35 years of government work in the military and Foreign Service.
But pride doesn’t make up for the thousands of dollars that civil servants like Covey stand to lose under current tax law, he said.
Covey, who bought a Seattle home 10 years ago for $164,000, will likely pay tax on the $36,000 capital gain he expects to realize when he sells the house in 2004. Unlike civilians, who can avoid capital gains if they have lived in a home for two of the previous five years, servicemen have no choice when or where they move and may not live in one place long enough to avoid the tax.
“I would prefer not to pay anything in capital gains tax,” said Covey, who is now living in Northern Virginia. “When it comes, it comes and I don’t want to worry about it until then.”
But a bill recently approved by the Senate Finance Committee could help military and Foreign Service personnel like Covey by waiving capital gains taxes on any property in which they have lived for at least two years over any period of time.
The Foreign and Armed Services Tax Act would, among other provisions, exempt servicemen and women from the requirement in the tax code that homeowners must have lived in a property for at least two of the past five years to avoid paying capital gains. Homeowners must also make less than a $250,000 profit — or $500,000 if filing jointly — on the sale of their home to dodge the tax.
Covey and others say the proposed tax break is appreciated, but not sweeping enough to make significant change.
“This is not necessarily a bad bill, but realistically how many people will be able to take advantage of this?” said Pete Sepp, a spokesman for the National Taxpayers Union. He noted that it will not help those who live in a home for less than two years.
Officials at the Department of Defense could not say how many military families might benefit from the measure, but the Office of Personnel Management said there are about 61,000 military and Foreign Service members in Maryland.
John Grady, a spokesman for the Association of the U.S. Army, said only 10 to 15 percent of people who join the military as recruits are still around come retirement, and only two-thirds of those live off-base. That makes the odds of many military servicemen escaping the tax slim, he said.
“It helps a minority of people, but it’s a good step forward,” Grady said. “You want to make it as equitable as possible for those who are moved around so much.”
Military officials say the bill could help families who rent out their homes in the United States while they are posted overseas.
Maj. Sandy Troeber, of the Office of the Assistant Secretary of Defense for Public Affairs, said 8,000 absentee owners rent their homes out each year, and sell at retirement only to be hit with capital gains tax.
“When military members deploy, it is a temporary thing and they leave their family behind, so it is more than likely they would not be selling their homes,” Troeber said. “This would extend the same favorable tax benefits that are available to most other Americans.”
Robert Johnston, the director of governmental affairs for the Anne Arundel County Association of Realtors, said the new bill might encourage more service families to buy homes instead of renting.
“By the time they come out of the military, they may not have much income, but now they’ll have substantial assets,” Johnston said of a benefit of homeownership.
Sepp agreed that some service families would benefit. But he said they will only be on an equal footing with civilians when they are entirely exempt from capital gains tax on their homes.
“In order to make this more beneficial, it would require going back in the tax code and pulling some weeds,” he said. “It is a cynical but true observation that lawmakers like to appear more helpful than they really are.”
Covey that said as long as he avoids capital gains tax, any change is welcome.
“The best part about it if this passes, I save money,” he said. “I already have to give 6 to 8 percent of my profit to the Realtor.”