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In early November 2003 Congress passed a military tax relief bill which enhances the home-sale gain exclusion rules for members of the U.S. Armed Forces and the Foreign Service.
Generally, you may exclude part or all of the gain from the sale of your main home, as long as you:
- have owned and lived in the home for at least 2 of the last 5 years before the date your house was sold, and
- have not sold and claimed the gain exclusion on another home within the 2-year period before the house sale.
For members of the uniformed services or the Foreign Service, the new bill suspends the 5-year holding period for any time during which you or your spouse are on qualified official extended duty. Qualified duty is defined as any extended duty in which you serve at a duty station that is at least 50 miles from your home, or in which you reside in government quarters under government orders. Extended duty is any period of active duty required by a call or order for a period in excess of 90 days or for an indefinite period of time.
The maximum length of time that the 5-year holding period can be suspended is an additional 10 years, and it can only be done with one property at a time. This special rule applies to home sales made after May 6, 1997.
So, for example, if you are called to active duty and serve overseas for a period of 1 year, to qualify for the home-sale gain exclusion you must have owned and lived in your home for 2 out of the last 6 years before the sale of the property. And, you still must meet the rules for not having sold another home within the last 2 years.
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