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Military Finances 301: The 10-Year Real Estate Suspension Thumbnail

Military Finances 301: The 10-Year Real Estate Suspension

Taxes Military Pay and Benefits

Due to the fact that Senior Military Officers and NCOs move around a fair bit, there is a pretty good chance that at some point in your career you owned a rental property. There is also a pretty good chance that at some point in the future, you'll sell that property. And if you're like most of us, you'd like to minimize the taxes you pay on the sale. Enter the Primary Residence Exclusion.

The Primary Residence Exclusion

Under the general rule, taxpayers are allowed to exclude from income up to $250,000 ($500,000 if Married Filing Jointly) in gains from the sale of a primary residence. To qualify as a primary residence, you and/or your spouse must have owned and occupied the house for 2 out of the 5 years prior to its sale. The rules are a little more specific than that, especially when counting time for a married couple. But most can figure it out

The Military Exception

Under the Tax Code, military members who meet certain requirements can suspend the 5-year time limit for up to 10 years. To do this, the military member must meet one of the following requirements

  • The move out of the house must be due to a PCS to a duty station 50 miles away from the current home.
  • The military member is ordered to move into government quarters

If the one of the above conditions is met, the clock will stop for up to 10 years.

What Happens Next?

If you stay on active duty for the next 10 years, the clock will start again and you'll have up to 3 years to sell the house and still qualify for the Primary Residence Exclusion (assuming you lived in it at least 2 years before you moved out).

But what happens if you leave the military before the 10 year suspension ends? I've heard some wild assertions about this on social media groups focusing on military financial matters (which is why you shouldn't get your financial advice from social media groups). Here is what the Tax Code says (paraphrasing)...The suspension ends when the qualified extended service ends. In other words, the suspension ends when you either move back to the area while still on active duty or when you leave the military.

That doesn't mean you lose the special treatment. You just have to start the clock again and have 3 years to sell the house (again assuming you lived in it for 2 years).

That's Not All

That doesn't mean you're off the hook for taxes on the sale. You'll almost certainly owe taxes on the depreciation allowed or allowable. But that is for another day.

Military Finances and Taxes are Different

You financial and tax life is as different as your professional life is from a civilian's. We think you should work with a financial advisor that works with military financial and tax issues each and every day. Give us a call to chat or schedule a free initial consultation at the button below.

Retired Military Finances 201: Understanding Depreciation Recapture


Military Finances 301: Depreciating Your Rental


Inherit the Family Home? Tax Consequences for Military Officers



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