Yesterday, I covered several residential real estate-specific federal income tax deductions available to current and prospective homeowners; in this post, I am broadening my focus to cover deductions from a general perspective.
Navigating federal income taxes can feel overwhelming, especially when deciding whether to itemize deductions or take the standard deduction. For the 2024 tax year, the standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly.
Taxpayers who itemize their deductions can list specific deductible expenses to potentially reduce their taxable income more than the standard deduction. Here are the top 10 tax deductions to consider, whether you’re a homeowner or not.
1. Mortgage Interest Deduction
If you’re a homeowner, the interest you pay on your mortgage may be deductible. For loans taken out after December 15, 2017, the deduction applies to interest on loan balances up to $750,000 ($375,000 if married filing separately). For loans taken before that date, the limit is $1 million.
2. State and Local Tax (SALT) Deduction
Taxpayers can deduct up to $10,000 ($5,000 if married filing separately) in combined state and local income, sales, and property taxes. This deduction is particularly beneficial for individuals in high-tax states, although it is capped due to recent tax law changes.
3. Charitable Contributions
Donations made to qualified charities are deductible, whether you give cash, goods, or securities. For 2024, most taxpayers can deduct up to 60% of their adjusted gross income (AGI) for cash contributions to public charities.
4. Medical Expense Deduction
If your unreimbursed medical and dental expenses exceed 7.5% of your AGI, the amount above this threshold is deductible. This includes expenses like surgeries, prescription medications, and even certain travel costs related to medical care.
5. Educator Expense Deduction
If you’re a teacher or eligible educator, you can deduct up to $300 (or $600 if both spouses are educators and file jointly) for out-of-pocket expenses for classroom supplies. This deduction is available even if you don’t itemize.
6. Student Loan Interest Deduction
Taxpayers paying interest on student loans may deduct up to $2,500 of interest paid, subject to income limits. This deduction is available whether you itemize or take the standard deduction, making it an “above-the-line” deduction.
7. Moving Expenses for Military Members
While most taxpayers cannot deduct moving expenses, active-duty members of the military relocating due to a permanent change of station may deduct unreimbursed moving costs, including transportation and storage expenses.
8. Home Office Deduction
If you work from home and are self-employed, you can deduct a portion of your home expenses (e.g., rent, utilities, maintenance) based on the percentage of your home used exclusively for business. Employees cannot claim this deduction under current tax laws.
9. Casualty and Theft Loss Deduction
Taxpayers who suffer losses due to federally declared disasters can deduct the unreimbursed portion of these losses. The deduction is subject to certain thresholds and limitations but can be a significant relief for those affected by natural disasters or theft.
10. Retirement Savings Contribution Credit (Saver’s Credit)
This tax credit rewards eligible taxpayers who contribute to retirement accounts such as IRAs or 401(k)s. Depending on income and filing status, you may receive a credit worth up to 50% of your contribution, with a maximum credit of $1,000 for single filers or $2,000 for joint filers.
Conclusion: Should You Itemize or Take the Standard Deduction?
Deciding whether to itemize or take the standard deduction depends on your unique financial situation. If your total itemized deductions exceed $13,850 (single) or $27,700 (married filing jointly), itemizing may lower your taxable income more than the standard deduction. However, if your deductible expenses fall below these thresholds, the standard deduction offers a simpler approach. A tax professional can help you evaluate your situation and ensure you maximize your deductions to keep more money in your pocket.