Senate committee approves military tax breaks

A day after the anniversary of the Sept. 11 terrorist attacks, the Senate Finance Committee voted to give more tax breaks to members of the armed forces and the Foreign Service.

The committee cleared the chairman's mark of the Armed Services Tax Fairness Act (H.R. 5063) on a voice vote. The action came a week after the committee considered the measure but failed to muster a quorum and as U.S troops remain in Afghanistan, the National Guard patrols U.S. borders, and President Bush seeks support for military action against Iraq.

"It's been 30 years since we mobilized our military forces at such great lengths," said Committee Chairman Max Baucus of Montana. The military "deserves to be treated appropriately under the tax laws."

The bill changes the tax code so that military and Foreign Service personnel can lower their real estate and capital gains taxes. It also improves tax breaks for military personnel when they travel for reserve duty, move residences, and pay child care costs. And it improves the tax treatment for membership in veterans' organizations and surviving spouse death benefits.

The tax provisions would be paid for by making it easier for the Internal Revenue Service to tax the assets of citizens who renounce their U.S. citizenship and by extending some IRS user fees. These changes would raise $997 million over 10 years.

The bill helps military personnel who must move frequently. Currently, a home owner living in a primary residence for two out of five years before selling it, can exclude the first $250,000-or $500,000 for a couple-from capital gains taxes. The bill suspends the requirement for up to 10 years for military and foreign service personnel and the commissioned corps of the National Oceanic and Atmospheric Administration and the Public Health Service.

The bill would also help those whose homes have lost value due to base realignment or base closure. It would exclude from income, payments that military personnel receive to offset such declining house values. The bill also clarifies that any dependent benefit provided to military personnel could be excluded from gross income.

In addition, all $6,000 in death gratuity benefits that spouses receive would be excluded from income. Currently, only $3,000 is excluded. The change would be effective retroactively to September 10, 2001.

Under the measure, National Guard and Reserve members who must travel overnight for reserve duty would be able to deduct travel expenses even if they don't itemize their taxes.

The bill passed the House by a vote of 412-0 last month. The House version does not include the funding provisions. A spokesman for House Ways and Means Committee Chairman Bill Thomas, R-Calif., said he will reserve comment on the funding issue until it passes the Senate.