Key Tax Benefits for Military Service Members and Veterans

Serving in the U.S. Armed Forces brings distinctive financial challenges — and some well-deserved tax advantages. Identifying and claiming these tax breaks can make a substantial difference at filing time. Here are some potential benefits available to active-duty personnel, reservists and veterans.

Combat Zone Exclusion

Generally, income earned from employment is taxable, but certain exceptions may apply. For example, if you're a member of the Armed Forces serving in a designated combat zone — or were hospitalized for wounds, disease or injury incurred while serving there — you can exclude the pay you receive in several situations.

This includes active-duty pay earned in any month served in a combat zone, imminent-danger or hostile-fire pay, and re-enlistment bonuses that extend into any month served in a combat zone. Also while serving in a combat zone, you can exclude pay for accrued leave earned in any month and part of any student loan repayment made for the year.

Important: The combat zone exclusion doesn't cover payments from a retirement plan or pension. Other special rules may apply.

Filing and Payment Extensions

Civilians must meet strict deadlines for reporting income and paying taxes. However, service members serving in a combat zone or certain contingency operations outside the United States may postpone many tax deadlines. Those who qualify may get an automatic extension of time to file and pay their taxes. In contrast, civilians can extend only their filing deadline.

Bear in mind, the IRS generally won't accept a joint tax return unless both spouses sign it. But if one spouse is absent and can't sign because of military duties or conditions, the other spouse can sign in his or her place. In other cases, a power of attorney is generally required. A military installation's legal office may be able to lend assistance.

Write-Off for Uniform Expenses

Before 2018, military service members who itemized their federal income tax returns could, under limited circumstances, deduct unreimbursed expenses for uniforms not suitable for everyday wear (including cleaning and upkeep) as miscellaneous itemized deductions. This tax break was subject to a 2% of adjusted gross income (AGI) floor.

The Tax Cuts and Jobs Act (TCJA) suspended most miscellaneous employee-expense write-offs for tax years 2018 through 2025. The One Big Beautiful Bill Act (OBBBA), enacted in 2025, made that suspension permanent beginning in 2026. As a result, unreimbursed expenses for military uniforms and their upkeep remain nondeductible at the federal level, with no scheduled expiration. Some states — California, for instance — continue to allow deductions for uniform expenses on state income tax returns.

Deduction for Moving Costs

The TCJA suspended the moving expense deduction for all employees other than active-duty military members for tax years 2018 through 2025. That suspension was scheduled to expire after 2025. However, the OBBBA made the suspension permanent for most taxpayers.

Fortunately, the OBBBA retained the exception for active-duty military members and added a new one, starting in 2026, for qualifying "intelligence community members." If you're eligible, you may deduct unreimbursed moving expenses related to travel and the cost of transporting household goods and personal effects.

Exclusion of Gain from Home Sale

Generally, single taxpayers can exclude up to $250,000 of gain from the sale of a home if they've owned and used the home as their principal residence for at least two of the five years before the sale. Married couples who file jointly can exclude up to $500,000 under the same circumstances.

However, the five-year look-back period may be suspended for up to 10 years during "qualified official extended duty." This effectively gives eligible military service members up to 15 years to meet the two-year ownership and use tests.

Deduction for Travel Expenses as a Reservist

If you travel as a member of the Armed Forces Reserves, you can generally deduct unreimbursed travel expenses while performing reserve duties more than 100 miles from your home. You may also be able to deduct the costs of overnight stays, such as meals and lodging. The deductible amount of these expenses — claimed under AGI — is limited to the regular federal per diem rate for lodging, meals and incidental expenses.

Important: You don't need to itemize deductions on your tax return to take advantage of this break.

Tax-Free Benefits for Veterans

Are you a retired military veteran? If so, there's a wide range of tax-free benefits to explore. Examples include:

• Disabled vets may be eligible for a 100% tax exemption for disability compensation, and
• Permanently disabled wartime vets over 65 may qualify for tax-free pensions.

However, if you receive a disability pension based on your years of service, you must include that amount or portion of a pension in your taxable income.

Fighting for Your Rights

Serving our country often comes with distinctive financial challenges. Fortunately, the federal tax code recognizes that sacrifice through special benefits for active-duty personnel and veterans. Work with your tax advisor to ensure you're making the most of the breaks you've earned.