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The Top Tax Breaks for Disabled Veterans

The Top Tax Breaks for Disabled Veterans

The US government offers various tax breaks and deductions for disabled veterans. When taking advantage of the available tax breaks, follow our guide to ensure you get the benefits you deserve.

Tax exemption for military personnel

The United States offers several tax breaks to disabled veterans to thank them for their service. Here are the requirements for each and how they might apply to your current situation.

How Disabled Veterans Tax Credits Work

Disabled veteran tax benefits are generally not claimed as a tax deduction or tax credit on your federal income tax return. On the contrary, they are often scattered in different areas and can work differently.

Tax relief depends in part on where you live.

The tax credits you are entitled to generally depend on where you live in America. Although there are tax breaks at the federal level, other tax breaks vary from state to state.

For example, property tax breaks are often for disabled veterans who own a home.

Each state has rules on who qualifies for a property tax exemption and how much the exemption costs.

However, these exemptions will not appear on your tax return. These will appear on your property tax bill.

Some of these breaks may apply if you have a certain level of work-related disability.

For example, Florida uses this measure to decide property tax exemptions:

  • A veteran with at least 10% service-related disability is eligible for a property tax credit of $5,000.

  • During this time, a 100% service-connected disabled veteran can obtain a full property tax exemption.

Indiana's property tax exemption goes one step further with a disability requirement and an age requirement:

  • Suppose you are under the age of 62. In that case, you must have a 100% service-related disability and have served honorably in wartime to qualify for a deduction of $24,960 from the property's assessed value.

  • If you are 62 or older, you only need at least 10% service-related disability to receive benefits.

Apply for tax breaks

Although every state is unique in its own way when it comes to taxes, property tax exemptions may require you to submit documents to claim them. You can contact the agency that sends you the IPTU invoices to find out who you should talk to. Next, you can find out what you need to do to get the disabled vet exemptions added to your account. Once you have this information, you'll want the exemption to be applied to your account as soon as possible.

Some tax exemptions apply automatically.

Sometimes, you may not need to complete any paperwork or claim a tax deduction or exemption on your tax return. Certain tax exemptions apply automatically.

An example of such is the disability benefits received from the Department of Veterans Affairs. You do not need to include these benefits in your gross income, so they should not be taxed.

Non-taxable disability benefits include:

  • Benefits under dependent-care assistance programs

  • Disability benefits paid to veterans or their families

  • Vehicle allowances for veterans who have lost the use of their limbs or sight, or housing designed for wheelchair users.

If you mistakenly reported some of that income as taxable on your federal tax return, read on to find out how to get a refund. You will be required to file an amended tax return, which a tax professional can help you with.

You may be required to file a tax return.

Some disability deductions or exemptions require you to file a tax return. You may be required to file a state tax return to claim these benefits if you receive state tax benefits. However, sometimes you also need to file a federal tax return to get a benefit.

If the Veterans Affairs Department determines that your disability rating has increased, you may be eligible to get an income tax refund by filing an amended tax return. Income is normally correctly reported as non-taxable or taxable on the applicable tax forms you receive, depending on your disability status. 

When this status changes to a previous year after filing a return for that year, your previous tax returns do not automatically correct themselves.

Instead, you will need to go back and amend your previous tax return to correctly reflect the new disability rating. Amending these returns to the new higher disability rating may result in a refund.

This may also apply to incapacitated veterans who apply for and receive special combat-related compensation after receiving an award for concurrent retirement and disability.

If you're unsure how to complete an amended tax return, a tax professional can walk you through the steps to help you complete and file the proper forms and file your amended return.

You may qualify for general disability tax relief.

As a veteran, you may also qualify for other non-veteran-focused disability tax benefits, such as:

  • The tax credit for the elderly and disabled

  • The child and dependent care credit, if you are married and you and your spouse paid someone to help take care of you.