If you’re a United States military disabled veteran, you could qualify for several tax breaks as a result. These benefits aren’t applied as a tax credit or deduction on your federal income tax return; rather, these breaks are spread across different areas, meaning they may work in different ways.
The tax breaks you qualify for will largely depend on where you live; while some are at the federal income tax level, others will vary from state to state. For example, property tax exemptions for disabled veterans who are homeowners depend on your state’s rules for these exemptions. Each state decides who qualifies for property tax exemptions and how much that exemption is. When you do qualify for that exemption, it won’t show up on your state income tax return—you’ll find the exemption on your property tax bill.
Meanwhile, states may only apply tax breaks depending on the level of service-related disability you have. A veteran with at least a 10% service-related disability could get a $5,000 property tax exemption in Florida, while a 100% service-related disability could lead to a full property tax exemption. Because of these differences at a state income tax level, it’s important to do your research and find out what you may qualify for.
Property tax exemptions may require you to file paperwork in order to claim them. You can contact the agency responsible for property tax to figure out who to speak with regarding these exemptions and how to get them applied to your account. Do this as soon as possible so you don’t have to worry about the exemption more than necessary.
In some cases, tax breaks apply automatically. Disability benefits from the Department of Veterans Affairs, for example, shouldn’t be included in your gross income, meaning they won’t be taxed. Other non-taxed benefits include disability compensation paid to either veterans or their families, grants for vehicles for veterans who lost the use of their limbs or sight due to their service, grants for homes designed for wheelchair use and living, and benefits under dependent-care assistance programs. If you accidentally filed any of these as taxable on your federal tax return, you’ll need to file an amended tax return to correct it.
Some tax breaks require you to file a tax return. While this is often for the state level, some federal level tax breaks require your tax return to be filed. This can be beneficial—if the Department of Veterans Affairs determines that your disability percentage has increased, for example, you may receive a federal income tax refund by filing an amended tax return. If this is the case, you’ll have to go back and adjust your previous tax returns to reflect your new disability percentage; this could result in a refund. This can potentially apply to combat-disabled veterans who apply for and are granted combat-related special compensation.
As a disabled veteran, 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 if you’re married and you and your spouse pay someone to help care for you.