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                         February 8, 2002

Amendment offers tax relief for military home sellers

By Irene Brown
Editor

A provision that could give military homeowners a big tax break is currently in the hands of the Senate, as part of the economic stimulus package.

The proposed amendment to the bill, introduced by Sen. John McCain, would let military members and U.S. Foreign Service officers enjoy a home-seller’s capital-gains tax relief provision offered under Internal Revenue Service Code 121.

Under the rule, which came into effect in 1997, home sellers who have occupied their principal residence for a total of 24 out of 60 months can keep up to $250,000 ($500,000 for couples) in sales profits tax-free.

But many servicemembers can’t take advantage of the provision, because they are sent overseas before they have lived in their homes for two years, and rarely are returned to the same U.S.-based duty station.

When such individuals sell their homes, they can’t meet the minimum residency requirement and owe taxes on any profits.

Congress passed a law that would exclude time served on active duty as exempt from the two-of-the-five-year test in 1999, as part of the Tax Payer Refund and Relief Act.

But President Clinton vetoed the bill.

Last April, Rep. Amo Houghton, revived the exemption by introducing the Military Homeowners Tax Relief Bill.

The Congressional Joint Tax Committee has estimated that such an exception will cost the government $300 million over 10 years.

Forty-six congressional representatives co-sponsored Houghton’s bill, which is languishing in the House Ways and Means Committee. That’s why McCain proposed adding Houghton’s exemption language as an amendment to the stimulus package.

The House passed its own version of the economics stimulus bill Dec. 20 (without the Code 121 exemption), but the Senate refused to act on it.

Sen. Charles Grassley, ranking member of the Senate Finance Committee, has convinced Senate leaders to consider adding McCain’s amendment. Now the Senate must vote on which amendments it will accept.

Once that’s decided, the Senate will vote on the whole measure, with 60 votes needed for passage. That vote is expected early next week.

Meanwhile, Grassley and other advocates for the military exemption are worried about what will happen if McCain’s amendment -- which has 39 Senate co-sponsors -- is not permitted to stand in the stimulus bill.

Congressional rules make it difficult to find a home for such a provision, Grassley said.