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New Heroes Earning Assistance and Relief Act of 2008
By John F. Rodgers
The Heros Earning Assistance and Relief Act (HEART ACT) of 2008, has many wonderful provisions for military, intelligence verterans, peace corps volunteers, and volunteer first responders. These benefits include: allowing Earned Income Credit to be calculated on combat pay, allowing reservists to receive 401(k) benefits without triggering the surtax for early distributions, allowing shorter periods of time for peace corp volunteers to qualify for exclusion of gain from sale of their residences, extending statutes of limitation for refunds of veterans in certain circumstances.
There are some revenue producing provisions that can provide some traps to green card holders who are contemplating returning to their native lands, or to American citizens who expatriate. If a permanent resident or expatriate American leaves, he or she will immediately owe tax on any gains in appreciated property to the extent it exceeds $600,000. There appears to be no exception for the principal residence in this provision. There are certain rules that apply - a resident alien must have resided in the US for 8 out of the last 15 years. A US citizen for the last 10 years or 10 out of the last 15 years. They must meet certain income thresholds ($124,000 average over last five years) or meet asset threshholds of $2,000,000. This means that any person who contemplating leaving the US and is getting close to meeting these rules, needs to either (a) manage their income to for example defer taking income in a year which might put them over that $124,000 average, or (b) move earlier than anticipated to avoid meeting the time limits. This doesn=t mean that you will avoid taxes entirely, but it can make them to be more manageable and avoid having to liquidate assets or post a bond to pay the taxes. There are also provisions dealing with calculations for recognizing income on deferred compensation arrangements (which include retirement accounts, Coverdale accounts, HSAs, SEPs and IRA=s).
Also if American citizens or resident aliens get gifts or inheritances from an expatriated American, it was not taxable, it is now charged with a gift or estate tax as though the expatriate American or former long term resident was an American citizen. So again, if you have a former US citizen or long-term resident now living abroad who wants to include you in the will or to give you a gift, careful planning will be needed.
Should you or a loved one be affected by these provisions, we will be happy to discuss these changes with you in more detail as the pertain to your circumstances. The statements herein are not intended to be tax advice and are not covered opinions under Circular 230 issued by the Department of Treasury for protection against penalties. Further, no attorney-client relationship is intended from this article. This article is for information purposes only and should not be relied upon without consultation with a qualified tax advisor.
