Posted: 3:28 am ET
Updated: 2:01 pm PT
Update: Tax Reform and the Foreign Service via afsa.org:
Several AFSA members have expressed concern that the House of Representatives version of the pending tax reform bill would impose a capital gains tax that could exceed $35,000 on anyone who sells their primary residence without having physically lived there for five out of the previous eight years.
The good news is that, after Congress adopted the current two-in-five-year rule in the early 2000s, AFSA joined with groups representing members of the U.S. military in securing passage of a law in 2003 that extended the qualifying period by up to 10 years for a taxpayer who is away from their primary residence on a Foreign Service, military, or intelligence community assignment. The current House bill does not change that special provision.
If the House provision becomes law, the 10-year extension for Foreign Service members would remain. Thus, the new five-out-of-eight-year rule would be a five-out-of-eighteen-year rule for Foreign Service members serving away from their primary residence.
If you may need to take advantage of this special treatment, please learn more about it in AFSA’s annual Tax Guide which is updated and printed every January in The Foreign Service Journal and on the AFSA website. Additional information is in IRS Publication 523 (page 5 in the current 2016 edition). The actual law is in Section 121 of the IRS code (26 USC 121).
AFSA would like to highlight the role of our then-Director of Congressional Relations Ken Nakamura, who was instrumental in securing the 2003 law affording special treatment for the Foreign Service. Since then, hundreds of AFSA members have each saved tens of thousands of dollars in taxes when they sold their primary residence after an extended period of overseas service. Your AFSA dues make possible victories such as this one.
Tax lawyer/lobbyist and friend of a friend who is highly engaged on the Hill on both tax bills asked that we pass on this alert for homeowners:
A provision in the House tax bill (H.R. 1) could cost us $100,000 in capital gains taxes when we sell our houses. Under current law, a homeowner filing jointly is allowed to exclude the first $500,000 of gain on the sale of a principal residence. The House bill deletes the current law’s $500,000 exclusion of gain from the sale of a principal residence. The Senate bill only lengthens the holding period from 5 years to 8 years, but retains the $500,000 exclusion.
The two bills will be reconciled in the next two weeks or so. I urge you to contact House and Senate tax writers asking them to adopt the Senate bill’s approach. The most important person to contact is your home state Senator and your own Representative in the House.
U.S. Senators – Get contact information for your Senators in the U.S. Senate.
U.S. Representatives – Find the website and contact information for your Representative in the U.S. House of Representatives
In addition, you can call the office and leaving a message or, in some circumstances, sending emails to the following key decision makers:
House Ways and Means Chairman Kevin Brady: Phone: (202) 225-4901
House Speaker Paul Ryan: https://paulryan.house.gov/contact/email.htm email him or call his office to leave a message of concern at his Washington office (202) 225-3031.
Senate Majority Leader Mitch McConnell: https://www.mcconnell.senate.gov/public/index.cfm/contactform and fill out the form or call his Washington office at (202) 224-2541
Senate Finance Committee Chairman Orrin Hatch: (202) 224-5251 or please call (202-224-4515), fax a letter to (202-228-0554).
Here is a Sample Message: I oppose the repeal of the $500,000 exclusion for gain from the sale of a principal residence in the House Tax bill (H.R.1). The $100,000 tax imposed by that repeal is important for my retirement, my family, and my ability to move to a new job in another location. There is no tax reduction in the bill that will offset that tax cost. The Senate version is better, and should be substituted for the House repeal.
It takes time and effort, but we understand that calls and emails coming from outside Washington, D.C. play an important role in this process.
You may review the text of H.R. 1 here; use the browser’s find function to see details under SEC. 1302. MORTGAGE INTEREST.