Top Tax Breaks for Disabled Veterans
The United States government offers several tax breaks and deductions for disabled veterans. As you look at how to take advantage of the available options, follow our guide to ensure you're getting the benefits you deserve.
Key Takeaways
- Certain tax breaks apply automatically, such as disability benefits received from the Department of Veterans Affairs (DVA).
- DVA benefits should not be included in your gross income, so they shouldn't be taxed.
- Property tax exemptions often exist for disabled veterans who are also homeowners, but each state has its own rules for who qualifies for a property tax exemption and how much that exemption is.
- Non-taxed disability benefits include disability compensation, grants for vehicles for veterans who lost the use of their limbs or their sight, and grants for homes designed for wheelchair living.
Tax breaks for the military
To thank you for your service, the United States offers multiple tax breaks for disabled veterans. Here are the qualifications for each and how they may apply to your current situation.
How tax breaks for disabled veterans work
Tax benefits for disabled veterans aren't usually applied as a tax credit or tax deduction on your federal income tax return. Instead, they're typically spread out over different areas and may work in different ways.
Tax breaks depend partly on where you live
The tax breaks you qualify for often depend on where you live in the United States. While there are some tax breaks at the federal income tax level, other tax breaks may vary from state to state.
For instance, property tax exemptions often exist for disabled veterans who are also homeowners.
- Each state has its own rules for who qualifies for a property tax exemption and how much that exemption is.
- These exemptions won't show up on your state income tax return, though. They'll show up on your property tax bill.
Some of these tax breaks may only apply if you have a certain level of service-related disability.
For example, Florida uses this measure when deciding property tax exemptions:
- A veteran with at least a 10% service-related disability may get a $5,000 property tax exemption.
- Meanwhile, a 100% service-related disabled veteran may get a full property tax exemption.
Indiana's property tax exemption takes things one step further with both a disability requirement and an age requirement:
- If you're under 62, you must have a 100% service-related disability rating and served honorably during any period of wartime to get a $24,960 deduction form the assessed value of the property.
- If you're 62 or older, you only have to have at least a 10% service-related disability to get the benefit.
Applying for tax breaks
While each state is different, property tax exemptions may require you to file paperwork to claim them. You can get in touch with the agency that sends property tax bills to find out who you need to speak with. Then, you can discover what you need to do to get any applicable disabled veteran exemptions added to your account. Once you have that information, you'll want to get the exemption applied to your account as soon as possible.
TurboTax Tip:
You may also qualify for general disability tax breaks, such as the Tax Credit for the Elderly and Disabled and the Child and Dependent Care Credit.
Certain tax breaks apply automatically
In some cases, you may not have to file any paperwork or claim a deduction or tax break on your tax return. Certain tax breaks automatically apply.
One example is disability benefits received from the Department of Veterans Affairs. These benefits should not be included in your gross income, so they shouldn't be taxed.
Non-taxed disability benefits include:
- disability compensation which is paid to either veterans or their families
- grants for vehicles for veterans who lost the use of their limbs or their sight, or homes designed for wheelchair living
- benefits under dependent-care assistance programs
If you accidentally claimed some of this income as taxable on your federal tax return, continue reading to see how you might get a refund. This requires filing an amended tax return, which TurboTax can help with.
You may need to file a tax return
Certain disability deductions or exemptions require filing a tax return. If your state's income tax offers benefits, they may require filing a state return to claim those benefits. However, you sometimes have to file a federal tax return to get a benefit, too.
If the Department of Veterans Affairs determines that your percentage of disability has increased, you might be able to get a federal income tax refund by filing an amended tax return. Normally, the income is correctly reported as taxable or non-taxable on the applicable tax forms you receive, based on your disability status. When you file your tax return with TurboTax, you'll simply enter the information from these forms, and the program will then treat the income as either taxable or non-taxable.
When that status changes for a previous year after you've filed a return for that year, your previous tax returns don't automatically correct themselves.
- Instead, you'll need to go back and adjust previous tax returns to reflect your new disability percentage properly.
- Amending those returns with your new, higher disability percentage could result in a refund.
- This may also be applicable to combat-disabled veterans that apply for and are granted combat-related special compensation after they receive an award for concurrent retirement and disability.
If you're confused about how to handle filing an amended tax return, TurboTax can walk you through the necessary steps to help you complete the proper forms and file the amended return.
You may also qualify for general disability tax breaks
As a veteran, you may also be eligible for other non-veteran-based disability tax breaks, such as:
- The Tax Credit for the Elderly and Disabled.
- The Child and Dependent Care Credit, if you're married and you and your spouse paid someone to help take care of you.
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