As Americans fire up their laptops and desktops to get another electronic-filing tax season underway, they might overlook something as old as tax time itself: savvy tax deductions that can coax a smile as you file.
Take a look at the three most important tax deductions you should claim this tax season as you get ready to crunch the numbers. Youll be surprised by how much you can save on your tax bill.
MORTGAGE INTEREST DEDUCTION
Unless you bought your home with cash or have paid off the mortgage, this tax deduction is probably a big one for you you can potentially save thousands of dollars in tax payments.
The mortgage interest deduction applies to both primary and secondary homes, said Mark Jaeger, director of tax development for TaxAct, a tax preparation software company. He added that the deduction can also apply to second mortgages and home equity debt up to $100,000 (or $50,000 if spouses file separately).
According to the IRS, taxpayers can deduct home mortgage interest if they meet two conditions:
First, they must file a form 1040 and itemize deductions on Schedule A.
Second, the mortgage must be secured debt on a qualified home that an individual owns.
Secured debt means you have put your home up as collateral to protect the interests of the lender, Jaeger said. Should a taxpayer not be able to pay the debt, the home can then serve as payment to the lender to pay back the debt.
STUDENT LOAN INTEREST DEDUCTION
If you are drowning in student loan debt, this deduction offers a life raft. The amount is claimed as an adjustment to income, and the amount available to deduct is the lesser of $2,500 or the amount of interest actually paid, Jaeger said.
However, he added, the amount of the deduction gradually decreases and phases out if the taxpayers modified gross income is more than $80,000, or $160,000 for married couples filing jointly. To claim the deduction for 2015, you need to meet the following conditions:
You have paid interest on a qualified student loan in tax year 2015.
You are legally obligated to pay interest on a qualified student loan.
Your filing status is not married filing separately.
If filing jointly, the taxpayer or his spouse cannot be claimed as dependents on someone elses return.
The loan was taken solely to pay qualified higher education expenses.
REAL ESTATE TAXES DEDUCTION
Homeowners can use one form of tax to offset another. Remember to deduct real estate taxes paid on real property you own including state, local or foreign taxes, said Melinda Kibler, a certified financial planner and portfolio manager with Palisades Hudson Financial Groups office in Fort Lauderdale, Fla.
To claim the deduction, make sure the taxes are based on the assessed value of the property.
If your real estate taxes are paid through your mortgage provider, be sure to check your Form 1098 for the real estate taxes portion, Kibler said. If you pull your real estate taxes from your county records, you may note there are portions broken out for ad valorem and non-ad valorem amounts. For tax purposes, use the ad valorem number, which is the assessed value of real estate or personal property.