Dateline: September 97
Taxpayer Fairness Act of 1997
The tax-cut package recently worked out between President Clinton and Congress will do away with some of the hardships formerly experienced by military families by making it easier to sell their homes.
During my active Naval career, my family and I received frequent changes of duty station orders that necessitated putting our old home up on the market and shopping for a new one. Under the old tax laws, we had to purchase a home of equal or greater market value or pay a tax on the difference in cost between the old and new homes. The new tax rules will exempt from tax the profits earned on the sale of a residence, which should benefit most military members and their families.
Married couples will now be exempt from paying tax on the first $500,000 in profits from the sale of their home. The limit is $250,000 for single people. This price range is well above the average cost of homes being purchased by military families. Most military families should now be able to sell their homes tax free. To qualify for this exemption, the home should be your principal residence, where you have lived for at least two out of the previous five years. This exemption can only be claimed once every two years.
The new law also benefits the military family transferring from a "high cost region" to a "low cost region." Under the old law, taxpayers had to buy a home of equal or greater value in order to avoid a tax on the profit from a home sale. If you had moved from a high-cost to a low-cost area, you would have needed to buy a larger or more expensive home than you really wanted in order to avoid the paying the tax.
The new Tax Bill contains other provisions that will also benefit the Navy family.
(1) An education investment plan to help families pay for their children's further education has been added. Families may invest up to $500 per child each year until the child reaches age 18 without paying tax on the interest. Withdrawals will also be tax free as long as the money is used to pay for undergraduate, graduate or vocational schooling.
(2) More generous rules on IRA's, including new provisions for individual retirement accounts, including higher income limits for tax-free participation, new rules for non-working spouses, and a new type of IRA for after-tax contributions. The new rules will also permit families to withdraw funds from their IRA for educational expenses and buying a first home without paying a penalty.
(3) A new tax credit for families with children aged 16 or younger amounting to $400 per child in 1998 and climbing to $500 for each child in 1999. This tax credit will be applied directly towards the tax bill and would represent a substantial saving for the military family.
Until next week shipmates, I bid you "Fair Winds and Following Seas."
