WASHINGTON – The House unanimously approved a bill Wednesday that could exempt military personnel from paying tax on the sale of their homes and death gratuity payments, among other provisions.
Supporters said the Foreign and Armed Services Tax Act is a huge step forward for military and Foreign Service personnel, including the 61,000 in Maryland. But others wonder if the act is broad enough to do much good.
The House appeared to have few such reservations about the bill, which passed 412-0 Wednesday.
“Our military unlike others have no choice where they work,” said Rep. Roscoe Bartlett, R-Frederick. “They buy a house, have to move, and then pay capital gains. We need to remove as many disadvantages as possible.”
Bartlett called the act “the right thing.”
Current law allows homeowners to exempt up to $250,000 in gains — or $500,000 if filing jointly — on the sale of a home in which the person has lived for at least two of the previous five years. But the five-year clock was hurting military personnel, who are often assigned to live elsewhere for years at a time.
The act would stop the clock for military personnel for time they were posted away from home, for up to an additional five years.
The act would also eliminate the tax on death gratuity payments. Currently, up to $3,000 is exempt — an amount that has been unchanged since 1991 when the benefit was doubled. The act applies to deaths occurring after Sept. 10, 2001.
Officials welcomed the changes, but had doubts about its impact.
“It’s going to have a limited effect,” said Rose Crowley, president of the Southern Maryland Association of Realtors.
“I can’t see how this is going to affect anybody’s decision to buy a house,” said Crowley, who deals often with military personnel the Patuxent River Naval Air Station. “This is a little make-the-Navy-feel-good thing.”
A spokesman for the National Taxpayers Union said exempting death gratuity payments from taxation does little to help service members and that the larger armed forces tax system that needs to be reviewed.
“It’s such a small amount to begin with. Congress probably never should have taxed half of it in the first place,” said Pete Sepp, the spokesman. “The rules regarding armed forces income and benefits are in desperate need of simplification. The pay is not very good from the start.”
The bill’s fate is uncertain in the Senate, where the Finance Committee passed its own version last month. The Senate bill includes a provision making it easier for National Guard and reserve military personnel to itemize transportation and housing costs on their tax returns.
The Joint Committee on Taxation estimated that the House bill would reduce federal revenue by $76 million in fiscal 2003 and by $265 million over the next 10 years.
Sepp said the bill passed unanimously because the government stands to lose so little money.
“This is a segment of the tax-paying population that is small to start out with and has relatively lower earnings,” he said. “It won’t impact bottom line of the government for any significant degree. Improving the financial life of military members is not only a popular cause, it’s an eminently achievable one.”