Your Money, Your Future
Your Money, Your Future

These overlooked tax breaks can help you save this spring

The deadline for filing your taxes is a little more than a month away, but you may still have an opportunity to save if you qualify for these breaks.

Deductions help lower your bill by reducing your taxable income based on the tax bracket that you're in. These are different from credits, which give you a dollar-for-dollar reduction of your income tax liability.

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You're probably familiar with the most popular itemized deductions, including the one you take for home mortgage interest or for charitable contributions. You also can take advantage of other expenses, including sales taxes and certain investment-related costs.

Be warned. It's also easy to mess up these lesser-known deductions, so be sure to work closely with your tax preparer.

"Use a tax professional, especially if you don't understand it," said Gavin Morrissey, managing partner of Financial Strategy Associates in Needham, Massachusetts. "Nobody wants the IRS poking around on them."

Exclusions for forgiven debt

In general, if a lender cancels all or part of a debt, you'll have to consider that amount as income.

However, you may be able to exclude some of the canceled debt under certain circumstances. The IRS allows this for some homeowners who had their mortgages canceled in 2016.

For instance, you may qualify for an exclusion if your lender lowered your mortgage balance through a loan modification.

Property taxes on multiple homes

Did you know that you can deduct property taxes on all of the homes you own — and not just your principal residence?

"People don't remember that property taxes paid on all homes can be deducted — this can be a sizable amount," said Tim Steffen, director of financial planning at Robert W. Baird.

The lowest median property tax bill is in Perry County, Alabama: $206, according to the Tax Foundation. The highest — $9,941 — is in Nassau County, New York.

New Jersey takes the cake with a mean effective property tax rate of 2.11 percent, making it the state with the highest levies.

Get a break for those solar panels

You can save money on taxes for making your home more energy efficient.

The IRS offers a pair of tax credits for energy-efficient improvements. The nonbusiness energy property credit covers the cost of energy-saving items, including adding insulation and efficient windows and doors — but not the cost of installing them. The credit is subject to a maximum lifetime limit of $500, of which $200 can go toward your windows.

The residential energy efficient property credit, meanwhile, is equal to 30 percent of the cost of alternative energy equipment installed in your dwelling.

This includes solar hot water heaters, wind turbines and solar electric equipment.

Deduct your RV or boat

You can deduct interest on mortgages for up to two dwellings: Your primary residence and a second home.

But what if your "second home" is on wheels or in the water? You may be able to deduct interest on this mortgage, too.

"Boats and recreational vehicles must have sleeping, cooking, and toilet facilities in order to qualify," said Julie Beach, a CPA and owner of Stockton Beach CPAs & Company in Huntington Beach, California.

Sales taxes

Seven states don't subject their residents to income taxes: Alaska, Florida, Nevada, South Dakota, Washington, Wyoming and Texas.

Instead of deducting state income tax, individuals can deduct their sales taxes. "The IRS acknowledges the difficulty of recordkeeping for all of your purchases, so there is a standard amount that you can take based on your income and where you live," said Steffen.

Be aware that while the IRS gives you a choice of claiming your state and local income taxes or your state and local sales taxes, you can't deduct both. The IRS' calculator for determining your state tax deduction is available here.

Tax prep and investment fees

The IRS has a number of miscellaneous itemized deductions you can take. You can deduct certain expenses to the extent they exceed more than 2 percent of your adjusted gross income.

This can be a bonanza for individuals with elaborate finances: You can deduct tax prep fees, the cost of tax advice and legal fees that are related to either producing or collecting taxable income or getting tax advice.

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Investment fees and expenses are also deductible, subject to the 2 percent of adjusted gross income threshold.

Morrissey warns that it's easy for filers to claim deductions for which they aren't entitled.

Fees in your 401(k) plan and IRA, for instance, aren't eligible.

"Retirement accounts are funded with pretax dollars, so fees deducted from there can't be deductible," he said.

Gambling losses

If you hit the roulette table and end up losing, you might be able to deduct your losses as a miscellaneous itemized deduction.

Should you go this route, prepare to document everything, including information on your wager, the location of the gambling establishment and the amount you won and lost.

"It can be hard for people who are using slot machines because you aren't tracking the money going in and you don't get a receipt," said Steffen.

Also, you can only deduct losses against gambling income, so if you lose your car at the casino, you won't be able to claim it.