Finding ways to save money on your income taxes can make a considerable difference in your financial situation. Often being able to take advantage of tax deductions can mean the difference between sending the Internal Revenue Service a check on April 15 or cashing a refund check of your own. Even so, there are maximums when it comes to taking deductions. Know how much you can deduct to accurately estimate your tax liability or refund.
Home Mortgage Interest
The home mortgage interest tax deduction is among the most beneficial deductions available to taxpayers. The reason it is particularly beneficial is because it has no maximum as long as you correctly identify the amount of interest you paid on your home in the previous year and the loan is secured by the property itself. Unsecured home loans do not qualify for this deduction.
Home Equity Interest
When a homeowner decides to take out an additional loan against his property it is called a home equity loan. If, for example, a house is worth $100,000 and the homeowner only owes $50,000 on the mortgage, he has $50,000 worth of equity in the home. A large portion of this equity can be borrowed against the home for any purpose the owner sees fit. If this equity loan took place after October 13, 1987, then the tax benefit is limited. Only funds used to build, purchase or improve the home can be deducted from tax liability. Funds used from the loan for other purposes are not tax deductible. The total loan amount after the equity loan can be no more than $1 million for married couples or $500,000 for singles, according to the Finance Scholar.
Anyone paying student loans can qualify for a tax deduction if the loans have interest attached. All interest paid on student loans may be deducted directly from the tax bill, up to $2,500 per year, according to the Moneywatch.
If you make improvements to your home for the purposes of energy conservation you can deduct 10 percent of the cost from your tax bill, according to Kiplinger. These improvements may include installing solar panels, replacement windows and doors, energy-efficient central air units and more. There is a maximum on this deduction. It tops out at $1,500 over any two-year period. So, if you are able to deduct $1,500 in one year keep in mind that you will not be able to claim any more expenses the following year.
If you are an educator you can deduct the cost of books, computers or any other educational supplies to reduce your tax liability. The maximum deduction for educational supplies is $250 per year.
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