Tax Breaks
The 11 Most Overlooked Tax Deductions
Plus four new breaks taxpayers likely will miss this year.
By Kevin McCormally, Editorial Director, Kiplinger.com
February 2009
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Even more important, in the year you pay off the loan -- because you sell the house or refinance again -- you get to deduct all as-yet-undeducted points. There's one exception to this sweet rule: If you refinance a refinanced loan with the same lender, you add the points paid on the latest deal to the leftovers from the previous refinancing ... and deduct the expense gradually over the life of the new loan.
11. Jury pay paid to employer. Many employers continue to pay an employees' full salary while they serving on jury duty, and some require the employees to turn over their jury fees to the company coffers. The only problem is that the IRS demands that you report those fees as taxable income. To even things out, you get to deduct the amount paid to your employer.
But how do you do it? There's no line on the Form 1040 labeled "jury fees." Instead the write-off goes on line 36, which purports to be for simply totaling up the deductions that get their own lines. Add your jury fees to the total of your other write offs and write "jury pay" on the dotted line.
Four new threats to your bottom line
These four new tax breaks are sure to be missed by far too many taxpayers. Be sure you're not among the overtaxed victims.
12. Recovery rebate credit. Remember those glorious tax rebates we got last year -- $600 for singles, $1,200 for married couples, plus $300 for each qualifying child? Well, they were really a pre-payment of the recovery rebate credit that appears on 2008 tax forms. Most Americans got everything they deserved last year, so they won't get a dime from the credit.
But millions of American do qualify for the credit, and it will save the lucky ones hundreds of millions of dollars. Who might qualify? You might, if your financial situation was different in 2008 from 2007. The rebate was based on information on 2007 tax returns, you see; the credit is based on what's on your 2008 return.
If you had a baby or adopted a child in 2008, so you probably deserve $300 in the credit. Divorced parents who alternate claiming the kids as dependents can both earn $300 for the children. The parent who claimed the children on his or her 2007 return got the rebate; the parent who claims them on the 2008 return gets the credit. It's perfectly legal. An adult child who was claimed on his or her parents return in 2007 couldn't get a rebate. But if he or she isn't a dependent this year, a $600 credit may be in order.
Both the rebate and the credit phase out at higher income levels -- more than $75,000 on single returns or more than $150,000 on joint returns. So, if your 2007 income was too high to earn the full rebate, but your 2008 income is lower, you may deserve a credit now. There's a 29-line worksheet in the IRS instructions, and by late February, the IRS expects to have a special calculator at www.irs.gov.
13. Double Hope and Lifetime Learning credits. After last summer's floods in the Midwest, Congress approved many breaks to assist the victims. Most benefit only people who live in the affected areas. But one big break -- a doubling of the value of the Hope and Lifetime Learning college credits -- applies to parents anywhere whose children go to college in designated parts of seven states: Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska and Wisconsin.
If your son goes to school in Iowa City or Madison, Wisc., for example, your Hope credit for the first two years of college jumps to $3,600 per qualifying student, for example, while the lifetime learning credit for other higher education doubles from $2,000 to $4,000 per return. The credits phase out at higher income levels, but qualifying parents in the phase-out zone still get bigger credits thanks to this change.
14. Property tax deduction for non-itemizers. Normally, to write off property taxes, you must itemize deductions. But for 2008, even homeowners who claim the standard deduction -- as about two-thirds of all taxpayers do -- can use property taxes to trim their income tax bill. You can boost your standard deduction amount by $500 if you're single or $1,000 if you're married and file a joint return to account for property taxes you paid on your home during 2008.
15. Casualty loss deduction for non-itemizers. Normally, only taxpayers who itemize deductions can deduct casualty losses. But for 2008, taxpayers who claim the standard deduction -- again, that's most taxpayers -- can add their casualty losses to their standard deduction amounts ... if their loss occurred in a presidentially designated disaster area. Also, the casualty loss deduction for losses in presidentially declared disaster areas does not have to be reduced by an amount equal to 10% of your adjusted gross income.