Tax Rules for Members of the Military

Don't miss out on special breaks and filing extensions.

By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance

In a recent Tax Tips column, I saw a mention of special rules for military home buyers. Does this mean that military families still have time to buy a house and qualify for the first-time home-buyer credit?

Yes, it does, but you must act quickly. Although most people had to buy a house before April 30, 2010, and go to settlement by September 30, 2010, to qualify for the home-buyer tax credit, the deadline was extended for a few groups of people: members of the military, foreign service and intelligence community who were stationed outside the U.S. for at least 90 days between December 31, 2008, and May 1, 2010. If you fall into this category and meet the income-eligibility requirements, you have until May 1, 2011, to enter into a binding contract and until July 1, 2011, to close on a new home. If you’re a first-time home buyer, you can claim a credit of up to $8,000; if you are a longtime homeowner who buys a new principal residence, you can claim a tax credit for up to $6,500. You can qualify for the extension if one spouse was deployed while the other spouse remained in the U.S.

My husband is in the Army and is currently deployed to Afghanistan. He will be there until July. What do I do about filing our taxes this year because he won’t be here to sign our tax return?

You don’t need to file an income-tax return while you or your spouse is deployed to a combat zone. You and your husband even have an extra 180 days after he returns from the combat zone to file your tax return. The deadline is extended for another six months after the last day of any continuous qualified hospitalization for injury from service in the combat zone. Both deadlines can be extended even more if you or your spouse entered the combat zone between January 1 and April 15, 2010.

Although your tax-filing deadline can be extended, it may not pay to wait if you are due a refund. You can sign the tax return on behalf of your husband if he has given you a power of attorney while he is gone. You can use either a general power of attorney or a power of attorney specifically for tax filing (IRS Form 2848). Even if you don’t have a power of attorney, you can still sign the return on his behalf as long as you attach a signed statement to your return explaining that your spouse is serving in a combat zone.

For more information about these deadlines, see the IRS’s detailed Extension of Deadlines –- Combat Zone Service FAQ. For more on the special tax rules for service members and their families, see IRS Publication 3, Armed Forces’ Tax Guide, and Tax Information for Members of the U.S. Armed Forces. Also see Military Personnel and their Families Get Free Tax Help for additional resources.