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Letters to the 107th Congress

July 31, 2002

The Honorable John McCain
United States Senate
241 Russell Senate Office Building
Washington, D.C. 20510

Dear Senator McCain:

On behalf of the American Bar Association, I would like to commend you for cosponsoring the Foreign and Armed Services Tax Fairness Act of 2002 (S. 2816). Your leadership in developing a proposal for a military homeowners capital gains exemption in Section 3 of S. 2816 is greatly appreciated. Such legislation is needed to correct an inequity that occurred as a result of the Taxpayer Relief Act of 1997 (Public Law No: 105-34); however, we suggest amending S. 2816 to include language that would make the application of Section 3 retroactive.

As you know, Section 121 of the Internal Revenue Code permits a single taxpayer to exclude up to $250,000 of the capital gains on the sale of a principal residence and permits a married couple filing jointly to exclude up to $500,000 on such a sale. Yet in order to qualify for such an exclusion, a taxpayer must have owned and used the home as a principal residence for two out of the five years prior to its sale. Otherwise, a taxpayer must pay taxes on all or a pro rata share of the capital gains on the sale of the home.

Unfortunately, this provision penalizes servicemembers who are unable to use a principal residence for two out of the five years prior to its sale, because they are deployed overseas or required to live in military housing. The ABA urges Congress to amend Section 121 to correct this inequity and to provide for retroactive application of this correction to May 6, 1997-the date the current rules for sale of a home went into effect.

We want to thank you for your plans to rectify the inequity created for service members by Section 121. We look forward to working with you to establish a military homeowners capital gains exemption.


Robert D. Evans
Director, Governmental Affairs Office

107th Congress Letters Home

Governmental Affairs Office
740 Fifteenth Street, NW
Washington, DC 20005
ph: 202-662-1760
fx: 202-662-1762

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