Owning a home comes with numerous benefits, and understanding the tax implications is crucial. For military members, navigating these benefits can be especially advantageous. This article provides a comprehensive overview of tax tips for military homeowners, covering general deductions and specific benefits tailored to their unique circumstances.
Generally, homeowners can deduct certain expenses on their federal income tax returns. One significant deduction is for mortgage interest. Homeowners can typically deduct the interest paid on their mortgage, which can significantly reduce their taxable income.
Another common deduction is for property taxes. These taxes, paid to local governments, are often deductible, though there may be limits depending on the state and local tax (SALT) limitations.
Additionally, if a homeowner sells their primary residence, they may be eligible for a capital gains exclusion. This allows them to exclude a certain amount of profit from their taxable income. For single filers, the exclusion is up to $250,000, and for married couples filing jointly, it’s up to $500,000. To qualify, the homeowner must have owned and lived in the home for at least two of the past five years.
Active duty military members have access to unique tax benefits related to homeownership. One crucial benefit is the ability to suspend the “two-out-of-five-year” rule for the capital gains exclusion—especially useful for those who receive Permanent Change of Station (PCS) orders.
Under the Servicemembers Civil Relief Act (SCRA), active duty personnel can suspend the time they are away on qualified official extended duty when calculating the two-year ownership and use requirement. This means they may still qualify for the capital gains exclusion even if they haven’t physically lived in the home for two of the past five years.
Additionally, active duty members may be able to deduct moving expenses. If the move is due to a PCS order, certain moving costs—such as transporting household goods—can be deducted. It’s important to keep detailed records of all moving expenses to ensure proper documentation and eligibility.
Veterans may also qualify for various tax benefits related to homeownership. Many states offer property tax exemptions or reductions for disabled veterans, which can significantly reduce their annual property tax burden.
Veterans who purchase a home using a VA loan typically do not have to pay private mortgage insurance (PMI)—a cost that can add up over time. Additionally, some states offer specific tax exemptions based on a veteran’s service record or disability status, further reducing the cost of homeownership.
Tax laws are complex and change frequently. Military homeowners should strongly consider consulting a qualified tax professional to ensure they’re maximizing all available benefits and deductions. A tax advisor can offer personalized guidance based on your service status, location, and homeownership history.
For military members, understanding these tax tips can make a significant difference in their financial planning. By taking advantage of the available deductions and exclusions, they can maximize savings and make informed decisions throughout their homeownership journey.
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The NextGen Home Group
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Colorado Springs, CO 80923
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