The Tax Deductions You Need to Know
Tax Day is quickly approaching, but before you file that return, make sure you’re not missing these three money-saving deductions and exclusions—especially if you sold your home or turned 65 this year. Here are the tax deductions you need to be aware of:
The Standard Deduction
You probably already know that if you don’t itemize, you can take the standard deduction. Additionally, the IRS pushes those numbers up when you turn 65. Before you file your tax return, find out how much you may be eligible to receive. These numbers depend on your marital status and age.
Home Sale Exclusion
This one is especially important for older adults who lived in their homes for a long time and sold it last year. Many retirees downsize and sell their primary residence. If you made a good profit from selling your house this year, you may be able to shelter a chunk of that money from the taxman.
If you lived in your primary home for at least two out of the five years before you sold it, you are likely to be able to exclude gains of up to $250,000 if you’re filing as single and up to $500,000 if you’re married and filing jointly. However, if you took the exclusion for another property within the last two years, you won’t be eligible to take it. You can find detailed rules for this tax benefit on the IRS’s website.
State and Local Sales Tax Deduction
When it comes to itemized deductions, many people choose to deduct state and local income taxes paid in that year. But you also have the lesser-known option of deducting state and local sales taxes. Many taxpayers who live in states that do not impose an income tax might not know that they are eligible to deduct state and local sales taxes. This could be key for retirees who have moved to states – like Texas – that don’t have income taxes.
There are a few caveats to this deduction though. First, you can’t take both. You can only deduct state and local income taxes or state and local sales taxes. While opting to deduct income taxes will often save you the most money, people who live in states with a high sales tax rate may benefit most from taking the deduction from sales tax. Second, you can only opt for the sales tax deduction if you itemize your deductions. If you take the standard deduction, you’re not eligible.