It's common to hear about all the tax benefits you can claim when you own your own home. Sure, if you're renting that means you don't have mortgage interest or real estate taxes to write off. However that doesn't mean there's not lots of other good stuff to write off you file your taxes.
Often, if you're a homeowner, the mortgage interest you pay can justify itemizing and giving up your standard deduction. However, itemizing might still be worth it, even without mortgage interest. Other itemized deductions include your state and local income taxes, medical expenses exceeding 10 percent of your adjusted gross income, charitable contributions and certain miscellaneous deductions, such as unreimbursed employee expenses and tax prep fees. So, if you live in a state with a high income tax or have been generous with your money during the year, it may still be worth your while to itemize.
Even if you're not itemizing, there are still plenty of adjustments to income, also called above-the-line deductions, that you can still take. For example, you might be eligible to deduct your traditional IRA or health savings account contributions, alimony you paid to an ex, or student loan interest. If you had to move for work and your stingy employer didn't pay for it, you can write off those costs, too. If you're a K-12 teacher, the first $250 you paid out of pocket for your classroom expenses is also an adjustment to income.
If you still have kids at home, you're usually allowed to claim them as dependents on your taxes. To claim them, each kid must meet the criteria to be either a qualifying child or qualifying relative. If they're under 19 at the end of the year, or 24 if they're full-time students; if they live with you for at least half the year; and if they don't provide more than half their own support; you can claim them as qualifying children. As of 2013, each dependent lowers your taxable income by $3,900.
Higher Education Tax Breaks
Whether you've gone back to school or are footing the bill for your kids, you don't want to miss out on the education tax breaks -- and none have any relationship to owning a home. As long as you're claiming the child as a dependent and meet certain eligibility criteria and income limits, the credits are yours. The American opportunity credit offers up to $2,500 off your tax bill, but is only available for the student's first four years of post-secondary education. Otherwise, the lifetime learning credit offers a 20 percent credit for up to $10,000 of expenses and can be used any number of years as well as for graduate school.
- Internal Revenue Service: Topic 501 -- Should I Itemize?
- Internal Revenue Service: Topic 502 -- Medical and Dental Expenses
- Internal Revenue Service: Topic 458 -- Educator Expense Deduction
- Internal Revenue Service: Form 1040
- Internal Revenue Service: Publication 970 -- Tax Benefits for Education
- Internal Revenue Service: Publication 17 -- Your Federal Income Tax
- Internal Revenue Service: Annual Inflation Adjustments for 2013
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."