Is The Military Homeowner’s Assistance Program Taxable?

The military’s Homeowner’s Assistance Program (HAP) has been in place for decades to help homeowners who have trouble selling their homes because of a Base Realignment and Closure (BRAC) initiative. The latest round of BRAC closures happened to coincide with the recent housing market crisis in America. A new addition to HAP was added in 2009 as part of the American Economic Recovery Act and includes protection to members of the military who are forced to move because of a permanent change of station or PCS move and lost value on the price of their home. The old and new versions of the law provide some monetary relief to eligible members of the military and federal employees who suffered a financial loss on the sale of their primary residence when they were not able to sell their homes under reasonable terms or conditions.

There Are Two Versions Of The Homeowner’s Assistance Program

There are two versions of the Homeowners Assistance Program: conventional and expanded. The conventional HAP was established by Congress in1966. It is only available for members of the military when the services conduct a round of base closures. The HAP is a special relief program that must be approved to start, and then it provides financial assistance to homeowners who are not able to sell their homes under reasonable terms because an announced closure that adversely affects the real estate market of a local area. The Army Corps of Engineers runs HAP on behalf of all the military branches. The expanded HAP is exactly like the conventional version, but it has been modified recently to include wounded service members, surviving spouses of military members who are killed in combat, and other members of the military who receive permanent change of station (PCS) orders.

Conventional Homeowner’s Assistance Program Is Taxable

The conventional HAP benefits payments are taxable. Members of the military owe taxes on support they receive when the support is above 95% of the prior fair market value (PFMV) of his or her home. For more information on the Conventional Homeowner’s Assistance Program, you should view the HAP website and the Army Corps of Engineers’ FAQ page.

Expanded Homeowner’s Assistance Program Is Not Taxable

Originally, the Expanded Homeowner’s Assistance Program and specifically the PCS clause was not tax exempt. President Obama signed HR 3548 which is the Unemployment Compensation Extension Act of 2009. He signed the bill into law which also included a new exception for Expanded HAP benefit payments from federal taxes. Payments to military members are also not subject to social security or Medicare taxes. Although HAP is exempt from Federal taxes, there may be state taxes that military members may have to pay. Applicants who had taxes withheld prior to the President signing the law change should receive a W2c which is a corrected Wage and Tax Statement from the Internal Revenue Service.

As with any complicated tax situation, HAP applicants should seek legal and tax assistance if there are any specific questions about the tax implications of HAP benefit payments. The military’s Homeowner’s Assistance Program (HAP) is a viable option for members of the Armed Forces who have had trouble selling their homes during the recent housing crisis. View the eligibility requirements and how to file for benefits at the Homeowner’s Assistance Program (HAP) website.








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Date published: January 17, 2011.

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Hank Coleman is a Major in the U.S. Army and a writer who focuses on personal finance, investing, and retirement. Hank holds a Master’s Degree in Finance and is currently studying to take the Certified Financial Planner exam. He runs the site Money Q&A and his writing has been featured on sites such as The Motley Fool, Military.com, and many others. You can follow him on Twitter at @HankColeman.

Comments

  1. I recently completed a EHAP sale on a rental home which initially was my primary. I closed in Dec 2011 using the Private Sale method and received the EHAP benefit in Jan 2012. Now doing 2011 taxes and am trying to determine how to claim HAP on the sale because I took a $50K loss on home without their assistance. If I report that loss, I am “double-dipping.” Any guidance on how to report/claim the assistance as part of the sale? I know when I receive my W2 for 2012, it will be considered non-taxable income. Thanks.

  2. I have the same question as the person above. I cannot get a straight answer anywhere. I have been preparing taxes for 16 years and this is the first time I have a client that used the HAP program and had the house as a rental. I have called the IRS multiple times which is no help at all. At this point I am just reporting the sales price of the home even though it seems like “double dipping” since the income from HAP is not taxable on federal taxes and they didn’t receive a 1099S for the sale of their home. It is showing a loss of $47,000.

  3. Fawn
    I am reporting the sale of the home but applying my HAP proportionally against time as a private residence and as a rental property and reporting the sale as a rental property. I lost $50K on the sale, but with HAP funding and depreciation taken on rental over 3 years, I end up with a $197 gain. I am documenting my calculations in the event I am audited, especially since I sold in 2011 (Private Sale) and received the HAP funding (of course non-taxable) in 2012.
    After talking with a number of CPAs and the IRS, this was the most conservative approach we could conclude, especially since there is no law defining. Additionally, since HAP qualification is based on private residence (2 of last 5 yrs) this is a unique situation and was probably not anticipated when the program was instituted. This may add more confusion, but without regulatory guidance, I believe either way should be acceptable. Makes about a $4K difference in my tax refund.

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