Military Family Tax Relief Act of 2003 [H.R. 3365]

On November 11, 2003, the President signed the Military Family Tax Relief Act of 2003 [H.R.3365].  The new law contains several tax provisions aimed at improving tax equity for members of the Armed Forces and their families, as well as other individuals engaged in the service of their country, such as Foreign Service officers and military academy attendees.  (Full text appears at www.natptax.com under "Tax Information")

Some of the key provisions include the following:

• The running of the five-year ownership and use period with respect to a personal residence is suspended for up to ten years during any period that the individual or the individual's spouse is serving on qualified official extended duty as a member of the uniformed services.  This provision is retroactive to sales after May 6, 1997.  Affected taxpayers have until November 11, 2004 to file for a refund even though the tax year in question is otherwise closed for refund purposes.
• Armed Forces members and certain Defense Department employees may exclude from income under §132 payments received under the Defense Department's Homeowner's Assistance Program.  This provision is effective on or after November 11, 2003.
• The exclusion of the amount of the military death gratuity increases from $6,000 to $12,000, effective with respect to deaths occurring on or after September 11, 2001.  Taxpayers who received death gratuities in excess of $3,000 on account of an eligible death occurring after September 10, 2001, and who have already filed tax returns for either 2001 or 2002, should consider filing amended returns for those years to claim the additional tax benefit provided under this new law.
• Income tax relief, death benefit relief, and estate tax relief for astronauts who die in the line of duty after December 31, 2002.
• A clarification that dependent care assistance payments are excluded from income as a qualified military benefit under §134.  Effective for tax years beginning after December 31, 2002.
• Distributions from a Coverdell Education Savings account or a §529 plan are not subject to the additional ten percent penalty for non-education use as described in §530(d)(4) if paid to an attendee of a military academy.  Effective for taxable years beginning after December 31, 2002.
• An above-the-line deduction for un-reimbursed overnight travel, meals, and lodging expenses of National Guard and Reserve members who must travel more than 100 miles from home and stay overnight in  connection with such services.  Effective for amounts paid or incurred in taxable years beginning after December 31, 2002.