The Most Overlooked Tax Deductions

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The Most Overlooked Tax Deductions
Standard Deductions for 2021 and 2022
Filing Status2021 Standard Deduction2022 Standard Deduction
Married Filing Separately$12,550$12,950
Heads of Household$18,800$19,400
Married Filing Jointly$25,100$25,900
Surviving Spouses$25,100$25,900

The personal exemption was eliminated by the TCJA, therefore you should account for it in your computations. The bill also repealed or altered the conditions for a number of tax breaks available to you in 2017. The TCJA, on the other hand, no longer restricts total itemized deductions based on AGI, which is at least one good move for itemizers.

If your total itemized deductions under the new tax code are less than the amounts stated above, you should take the standard deduction instead. If so, keep reading to find out about the most often ignored itemized deductions and how they might help you save even more money.

Tax Deductions for Homeowners

Owning a property may provide you with significant tax benefits each year. Here’s a rundown:

  • Interest on a mortgage. You may deduct mortgage interest payments on up to $1 million in loans used to buy, develop, or renovate your first or second home if you purchased it before December 15, 2017. You may deduct mortgage interest on the first $750,000 of a loan if you bought it after December 15, 2017. The $1 million restriction will be reinstated in 2025.
  • Mortgage insurance purchased privately. Your lender may mandate private mortgage insurance, or PMI, if you borrow more than 80% of the home’s purchase price. Mortgage insurance payments paid after 2006 are deductible. The amount of the deduction, however, is determined on your income: If your annual income exceeds $100,000 (or $50,000 for married couples filing separately), the deduction begins to taper off. If you earn more than $109,000 per year (or $54,500 if married filing separately), there is no deduction.
  • Points. Points may be charged by lenders in return for a lower interest rate. One point is 1% of the total amount financed. Points linked with a home purchase mortgage might be deducted. In general, you cannot deduct the whole amount of points paid in the year they are paid. Instead, they are usually deducted throughout the life of the loan.
  • Taxes on real estate. One of the most important changes brought about by the TCJA was the limitation of deductions for property taxes and other state and local taxes (“SALT”).For tax years 2018 through 2025, you may deduct a total of $10,000 for state and local income, sales, and property taxes ($5,000 for married couples filing separately).
  • Deduction for Home Office. If you use a portion of your house entirely for business activities and your home is your primary location, you may be allowed to deduct a portion of your home expenditures linked to your job.
  • Selling Prices. If you sell your house, you may deduct your selling expenses, which include real estate agent commissions, title insurance, legal fees, advertising charges, administrative costs, escrow fees, and inspection fees. Remember that if you sell your house for a profit, you may deduct up to $250,000 in capital gains, or up to $500,000 if you’re married filing jointly.
  Estate Tax Exemption 2022: How Much It Is and How To Calculate It

The mortgage credit certificate (MCC) program enables low-income, first-time homeowners to get a mortgage interest tax credit of up to 20% of their mortgage interest payments—up to $2,000 each year. To get the credit, you must first obtain a certificate from your state or local government.

Vehicle Sales Tax Deduction

When you purchase an automobile, you must pay sales tax. Some states continue to charge you each year for the “privilege of driving a motor vehicle on public roadways,” as Kentucky puts it. Every year, most states send out a notification demanding their tax payment in order to register your automobile. After you apply your new decal, you may be able to submit the receipt and subtract the money from your personal property taxes in April.

If your state determines a percentage of your vehicle registration depending on its worth, you may deduct that percentage from your personal property taxes. The proportion of your vehicle registration dependent on its weight is not tax deductible. In New Hampshire, for example, a component of automobile registration is deductible (the municipal amount depending on value) and a piece is not (the state portion which is based on weight).

The same is true for an RV or boat—check the registration documents to see whether you are paying property taxes on them as well, and remember the $10,000 total SALT tax maximum.

Tax Deductions for Charitable Donations

You gave Goodwill your slim jeans and wagon-wheel coffee table, which lowers your taxes by boosting your philanthropic deductions. If you claim a deduction of more than $5,000 per item (or a group of comparable things), the IRS requires you to show “a qualified appraisal of the item or group of items.” You may need to engage an expert to appraise the worth of your contribution for things such as electronics, appliances, and furniture.

Even if you make the usual gift, you may deduct up to $300 ($600 if married filing jointly) in cash donations to qualified organizations for the 2021 tax year. This is referred to as an above-the-line deduction.

If you itemize, you may normally deduct up to 20% to 60% of your AGI for charitable contributions—the amount varies based on the kind of gift and the type of organization. However, beginning in 2021, you may deduct up to 100% of your AGI for financial gifts to eligible charitable organizations.

  Bilateral Tax Agreement

The 100% monetary contribution limit is not automatic. You must select to accept the new restriction or the old limit will be applied. You may make your choice on Forms 1040 or 1040-SR.

Tax Deductions for Volunteers

If you like helping in your spare time and use your own money to go to your favorite charity, you may deduct those costs from your charitable contributions (but not the value of your time or service).The trip’s principal objective must be charitable, with no significant aspect of a vacation. To qualify, you must be “on duty in a true and significant sense during the trip,” according to the IRS.

Whether you take the bus or drive your own automobile, you’ll need to keep detailed records of your philanthropic contributions: Keep receipts for public transportation, mileage records for your automobile (for which you may charge the regular $0.14 per mile fee for charity organizations), and parking and toll receipts.

Tax Deductions for Medical Expenses

The IRS permits a medical expenditure deduction, but only for the part of the expense that exceeds 7.5% of your AGI. If your AGI exceeds $50,000, you may deduct just the amount of your medical costs that exceed $3,750. If your insurance provider reimburses you for any portion of your expenditures, you cannot deduct that amount. If insurance reimburses you for any percentage of expenditures claimed in the current year in a future tax year, you must include the reimbursement (up to the amount taken as a deduction) as income in the future year.

A percentage of the money you pay for long-term care insurance may also help you save money on taxes. Long-term care insurance is a deductible medical cost, and the IRS allows you to deduct an increasing part of your premium as you become older, but only if your company or your spouse’s employer does not subsidize the insurance.

Another advantage is that you can deduct transportation and travel expenses related to medical care, which means you can deduct any bus, car expenses (at the standard mileage rate for medical purposes of $0.16 per mile), tolls, parking, and lodging (but not meals) as long as the total exceeds the 7.5% limit for 2021. Remember that you may only deduct $50 per person each night of accommodation (you can include lodging for a person traveling with you).

If your total medical expenditures surpass the 7.5% maximum for 2021, you may deduct any extra co-payments, prescription medication prices, and lab fees as part of your medical expenses. The IRS enables you to include typical fees and services, such as therapy and nursing care, if they are not completely covered by your insurance coverage. In truth, the IRS’s definition of medical costs is very wide, including acupuncture and smoking cessation programs.

  Property Tax Exemptions to Seek During Assessments

Health savings accounts (HSA) contributions are tax deductible. You may contribute up to $3,600 to an HSA if you have a high-deductible health plan (HDHP) in 2021 (or $7,200 if you have a family HDHP). The restrictions will increase to $3,650 and $7,300, respectively, in 2022.

Other Tax Deductions

The TCJA regulations remove most deductions that were previously classified as “miscellaneous itemized deductions.” Many of these deductions had a 2%-of-AGI cap, which meant you could only deduct the amount that exceeded 2% of your AGI. The 2%-of-AGI criterion is no longer applicable under the TCJA, however you may no longer deduct the following:

  • Unreimbursed work costs, such as business travel and union dues
  • Unreimbursed relocation fees if you had to relocate to start a new employment (exception: active-duty military moving because of military orders)
  • The majority of investment costs, including advice and management fees
  • Tax preparation charges (except for fees to prepare Schedules C, E, or F, which are deductible business expenses)
  • Fees to contest an IRS ruling
  • Hobby expenses
  • Except in federally designated disaster zones, personal casualty or theft losses

Here’s what you can stilldeduct:

  • Gambling losses might equal your gains.
  • Interest on money borrowed to purchase an investment
  • Losses due to casualty and theft on income-producing property
  • The federal estate tax applies to income derived from inherited assets such as IRAs and retirement benefits.
  • Work-related expenditures for individuals with impairments
  • Student loan interest (limited to $2,500 or the total interest paid in the year)

What Can Homeowners Deduct?

Tax deductions for mortgage interest, points, property taxes, private mortgage insurance (PMI), and home office expenditures are available to homeowners.

What Is the Standard Deduction for 2021?

The standard deduction for single and married filing separate taxpayers is $12,550 for tax year 2021, $18,800 for heads of household, and $25,100 for married filing jointly or eligible widow(er) taxpayers.

What Is the Standard Deduction for 2022?

The standard deduction for single and married filing separate taxpayers is $12,950 for tax year 2022, $19,400 for heads of household, and $25,900 for married filing jointly or eligible widow(er) taxpayers.

Can I Deduct Charitable Donations in 2021 if I Don’t Itemize?

The CARES Act of 2021 allows persons who make monetary donations to specified charitable organizations to deduct up to $300 ($600 for married filing jointly taxpayers) even if they use the standard deduction.

The Bottom Line

The receipts you stuff into your wallet might mean extra money in your bank account come tax season. Retain receipts for services and keep a file throughout the year to keep track of even the smallest costs for company, charity, and your health. As such costs accumulate, they may eventually reduce your tax bill.

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