[Congressional Record Volume 144, Number 31 (Thursday, March 19, 1998)]
[Senate]
[Pages S2300-S2301]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. McCAIN:
  S. 1799. A bill to amend section 121 of the Internal Revenue Code of 
1986 to provide that a member of the Armed Forces of the United States 
shall be treated as using a principal residence while away from home on 
extended active duty; to the Committee on Finance.


                       tax exclusion legislation

  Mr. McCAIN. Mr. President, I am proud to sponsor this bill to amend 
the Internal Revenue Code. This bill would modify the home ownership 
test for Sales of Primary Residence so that members of our Armed 
Forces, who are away on active duty, qualify for the existing tax 
relief on the profit generated when they sell their main residence. 
This amendment will not create a new tax benefit; it merely modifies 
current law to include the time military personnel are away from home 
on active duty when calculating the number of years the home owner has 
lived in their primary residence. In short, this amendment is narrowly 
tailored to remedy a specific dilemma.
  The Taxpayer Relief Act of 1997 delivered sweeping tax relief to 
millions of Americans through a wide variety of important tax changes 
that affect individuals, families, investors and businesses. It is also 
one of the most complex tax laws enacted in recent memory.
  Mr. President, as with any complex legislation, there are winners and 
losers. But in this instance, there is an unintended loser: military 
personnel. The 1997 act gives taxpayers who sell their principal 
residence a much-needed tax break when they sell their primary 
residence. Under the old rule, taxpayers received a one-time exclusion 
on the profit they made when they sold their principal residence, but 
the taxpayer had to be at least 55 years old and live in the residence 
for 2 of the 5 years preceding the sale. This provision primarily 
benefited elderly taxpayers, while not providing any relief to younger 
taxpayers and their families.
  Fortunately, the 1997 act addressed this issue. Under the new law, 
all taxpayers who sell their personal residence on or after May 7, 
1997, are not taxed on the first $250,000 of profit from the sale. 
Joint filers are not taxed on the first $500,000 of profit they made 
from selling their principal residence.
  Mr. President, I applaud the bi-partisan cooperation that resulted in 
this much-needed form of tax relief. The home sales provision sounds 
great, and it is. However, when we delve deeper

[[Page S2301]]

into this law, we note that the taxpayer must meet two requirements to 
qualify for this tax relief. To qualify, the taxpayer must (1) own the 
home for at least 2 of the 5 years preceding the sale, and (2) live in 
the home as their MAIN home for at least 2 years of the last 5 years.
  The second part of this test unintentionally prohibits many of our 
women and men in the Armed Services from qualifying for this beneficial 
tax relief. Constant travel across the U.S. and abroad is inherent to 
military service. Nonetheless, some military personnel choose to 
purchase a home in a certain locale, even though they will not live 
there for much of the time. Under the new law, if you do not have a 
spouse, and are also forced to travel, you will not qualify for the 
full benefit of the new home sales provision, because no one ``lives'' 
in the home for the required period of time. The current law also hits 
dual-military couples that are often away on active duty. They, would 
not qualify for the home sales exclusion because neither spouse 
``lives'' in the house for enough time to qualify for the exclusion.

  Today, the United States has approximately 37,000 men and women 
deployed to the Persian Gulf region, preparing to go into combat, if so 
ordered. There are another 8,000 American troops deployed in Bosnia, 
and another 70,000 U.S. military personnel deployed in support of other 
commitments worldwide. That is a total of 108,000 women and men 
deployed outside of the United States, away from their primary home. 
These women and men are abroad protecting and furthering the freedoms 
we Americans hold so dear.
  It is fundamentally unfair to deny these men and women the same tax 
relief as their civilian counterparts. The newly enacted current home 
sale provision unintentionally discourages home ownership among 
military personnel. Many of our troops simply do not qualify for the 
homes sales tax relief because they are away from their home so much of 
the time.
  Discouraging home ownership among military personnel is unfair and 
bad fiscal policy. Home ownership has numerous benefits for communities 
and individual homeowners. Having a fixed home provides Americans with 
a sense of community, and adds stability to our nation's neighborhoods. 
Home ownership also generates valuable property taxes for our nation's 
communities.
  We are in a period of robust growth. Americans who are fortunate 
enough to do so, reap the benefits of our country's growth by investing 
in the stock market. Many of our nation's recent millionaires became 
millionaires through the stock market. However, many middle- and lower-
income Americans don't hold vast amounts of stocks, bonds, mutual 
funds, and the like. Therefore, how does the average American 
participate in our nation's robust growth? Through home ownership.
  Appreciation in the value of a home resulting from our country's 
overall economic growth allows everyday Americans to participate in our 
country's prosperity. Fortunately, the Taxpayer Relief Act of 1997 
recognized this, and provided this break to lessen the amount of tax 
most Americans will pay on the profit they make when they sell their 
main homes.
  This bill simply remedies an inequality in the new law. The bill 
amends the Internal Revenue Code so that members of our Armed Forces 
will be considered to be using their house as their main residence for 
any period that they are away on extended active duty. In short, 
military personnel will be deemed to be using their house as their main 
home, even if they are stationed in Bosnia, the Persian Gulf, in the 
``no man's land,'' commonly called the DMZ between North and South 
Korea, or anywhere else on active duty orders.
  We cannot afford to discourage Military service by penalizing 
military personnel with higher taxes merely because they are doing 
their job. Military service in itself entails sacrifice, such as long 
periods of time away from friends and family, and the constant threat 
of mobilization into hostile territory. We must not use the tax code to 
heap additional burdens upon our women and men in uniform.
  In my view, the way to decrease the likelihood of further inequities 
such as the current Home Sales provision is to adopt a fairer, flatter 
tax that is far less complicated than our current system. But, in the 
meantime, we must insure that the tax code is fair and equitable.
  The Taxpayers' relief Act of 1997 was designed to provide sweeping 
tax relief to all Americans, including our women and men in uniform. 
Yes, it is true that there are winners and losers in any tax code. 
However, this inequity is unintended. We should enact this narrowly 
tailored remedy to grant equal tax relief to the members of our Armed 
Services.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1799

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. ARMED FORCES MEMBER TREATED AS USING PRINCIPAL 
                   RESIDENCE WHILE AWAY FROM HOME ON ACTIVE DUTY.

       (a) In General.--Section 121(d) of the Internal Revenue 
     Code of 1986 (relating to special rules) is amended by adding 
     at the end the following new paragraph:
       ``(9) Determination of use during periods of active duty 
     with armed forces.--
       ``(A) In general.--A taxpayer shall be treated as using 
     property as a principal residence during any period the 
     taxpayer (or the taxpayer's spouse) is serving on extended 
     active duty with the Armed Forces of the United States, but 
     only if the taxpayer used the property as a principal 
     residence for any period before the period of extended active 
     duty.
       ``(B) Extended active duty.--For purposes of this 
     paragraph, the term `extended active duty' means any period 
     of active duty pursuant to a call or order to such duty for a 
     period in excess of 90 days or for an indefinite period.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales or exchanges after May 6, 1997.
                                 ______