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You Deserve A (Tax) Break!

By Sylvia Cannon

• Analyze your budget

Fall 2007

The Servicemembers Civil Relief Act (SCRA) helps military, reservists and National Guard members meet financial and legal obligations at home while they fulfill active-duty assignments. Though the SCRA has been active for some time, the military and the lending community still need better awareness of this law and its provisions, which can be extremely beneficial to deployed servicemembers and their families.

The SCRA requires mortgage lenders, landlords and other creditors to grant you special status. By law, they cannot immediately foreclose on your mortgage or other loans and cannot evict you as a tenant. But that's not all: SCRA also requires lenders to lower the interest rates you pay on existing mortgages, credit cards and personal loans. And lenders must make sure the lower interest rates translate into lower monthly payments.

Some of the SCRA's most helpful provisions include:

Reduced interest rates and loan payments: Lenders must lower interest rates to six percent on your pre-existing home mortgages, credit cards, car loans and other personal loans. Any interest you owe above six percent during your period of active duty will be forgiven, not just deferred.

Property protection: Lenders cannot foreclose on your home mortgage or other loans without proving legally that your military duty did not affect your ability to make payments.

Rent protection: If your rent is less than $2,465 per month, your landlord cannot evict you or your family for late payments or any reason without petitioning for a court order.

Rental/auto lease protection: When you are deployed or relocated, you can terminate a preexisting residential or automobile lease. To terminate a lease, you generally need to give the landlord or lender 30 days written notice.

State tax support: If your spouse works and owes tax in a state other than the state of your permanent legal residence, SCRA will protect your family from double taxation. When that state determines the tax rate on your spouse's income, they will exclude your servicemember income.

Legal postponement: If your deployment prevents you from attending court or legal meetings related to a divorce or other legal process, you can request deferral for 90 days or longer. To do so, submit a written request to the court along with a letter from your commander that explains why you cannot attend proceedings before a specified date.

In order to claim the SCRA benefits, you'll have to request them from your lenders and provide proof of your active status. Although most lenders comply readily when you disclose your military status, some may not be aware of the law. If you encounter any problems, contact your military legal assistance officer.

Combat Zone Protection

Active-duty military personnel in combat zones receive certain tax breaks and privileges that help keep their minds on the job at hand.

As a member of the military, you are eligible for an interest-free extension to pay your income taxes because service in Iraq, Afghanistan and other locations may have seriously impaired your ability to pay or file a return. The extension lasts for the initial period of service plus six months and covers a soldier's spouse as well, regardless of whether they file joint or separate returns. The extension applies only to federal income taxes. Individuals serving in a combat zone as support for the U.S. armed forces, such as Red Cross workers, accredited correspondents and civilian personnel acting under the direction of the U.S. armed forces are also entitled to the extension.

Active-duty pay earned by U.S. armed forces personnel performing duties in a combat zone is not subject to federal income tax (soldiers are still obligated to pay Social Security and Medicare taxes). Additionally, active-duty pay is not taxed in the state in which military personnel are currently stationed, only in their official home state of record. Most states exempt all or part of active-duty pay.

Calling home is also encouraged, because telephone calls placed to the United States from a combat zone by a member of the U.S. armed forces are exempt from the federal excise tax on toll telephone service. If you already paid the excise tax, you can file IRS Form 8849 to obtain a refund.

Combat zone military personnel, still under the combat extension, are eligible to make qualified contributions to an IRA for the 2006 tax year after April 16, 2007. Servicemembers who are entitled to a refund but who do not file until they return home from combat duty will receive interest on the refund amount from the IRS. However, the tax return must be filed within the six-month extension window to be eligible for the interest payment.

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Sylvia Cannon, a retired Air Force logistics officer and spouse of an active duty Army officer, has been an H&R Block office manager for six years. H&R Block’s 12,500 retail tax offices nationwide can assist servicemembers with any tax or financial concern. Call 1-800-HRBLOCK or visit www.hrblock.com to find the location nearest you.

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