The Tax Cuts and Jobs Act (HR 1, “TCJA”), which took effect in 2018, abolished personal exemption .But still there are seven specific personal tax deductions that an individual tax payer cam claim under itemized deductions .Readers must be aware that these itemized deductions are available only if you have not opted for standard deduction. Here is the list of seven common personal tax deductions irs tax deductions.
1. Claim mortgage interest on home loan .
In order to claim tax relief by reducing the mortgagee interest while computing taxable income , following rules must be satisfied
- You must have actually make the payments.
- You can claim tax deduction for mortgage interest only for the first and the second homes purchased before December 15, 2017
- You can only claim a mortgage interest deduction for the percentage attributable to the first $1 Million of home loan you borrowed, courtesy .What happens if the house was purchased after December 15, 2017 ?In that case , you can deduct the interest on only up to $750,000 in acquisition debt for a first and second home. However, the reduction does not apply to refinancing of homes purchased before December 15, 2017 as long as the new loan does not exceed the amount of the mortgage being refinanced.
2. State and local Taxes
If you itemize, you may deduct following state and local taxes.However, as a result of the TCJA, there is maximum limit of deduction of $10,000 in state and local taxes each year during 2018 through 2025.
- property taxes, and
- state income or sales taxes,
whichever is greater.
Readers should note that $10,000 limit applies to both single and married taxpayers . It is also not indexed for inflation.
3. Charitable donations.
Donations or contribution to qualified charitable organization will allow you to claim tax relief If you itemize. However, you need to to maintain documentation for your cash or non-cash contribution. Please read what record of charitable contribution are a must for claiming tax deduction . For noncash i.e property contributions to charity over $500, you have to file , Form 8283, Noncash Charitable Contributions along with your tax return
4. Medical and dental expenses including health savings accounts.
For the year 2017 & 2018, if you itemize, you can deduct the amount of your medical and dental expenses that exceed 7.5% of your adjusted gross income. For the tax year 2019 , the limit is scheduled to increase to 10% of AGI. So if your AGI is $ 1,00,000 , then maximum tax relief you get is $7.500 (7.5% of $100,000) during Year 2018 and $10,000 during tax year 2019.
If you have a qualified Health Savings Account (HSA), which you can have if you have a high-deductible health plan that qualifies under the HSA rules, then you can deduct contributions to the HSA.
5. Retirement Plan contributions.
The contribution to 401(k) and IRA lets you claim tax deduction equal to the amount of contribution So it pays to follow following simple rules to maximize the tax relief
- If your employer offers a 401(k), it pays to maximize your contributions which is $18,500 for tax year 2018 and $ 19,000 for tax tax year 2019 .
- If you are 50 or older, you can contribute an extra $6,000 per year.
- For IRAs, you can contribute $5,500 (2018) and $6,000 for tax year 2019
Please note that this deduction is phased out if your income is over certain limits and you and your spouse have a workplace retirement plan. Please also read rollover of retirement plans
6. Student loan interest.
The student loan interest is an “above the line” deduction. In other words, you can reduce the interest from Gross Income without itemizing your personal deductions. You can deduct up to $2,500 in student loan interest payment per year, for the lifetime of the loan .
7. Claim Education expenses tax relief
This one is an indirect tax deductions. Set up a state-sponsored college savings plan, known as a Section 529 plan, which allow tax-free withdrawals for qualified college expenses. You can withdraw upto $10,000 from a 529 plan each year , starting from tax year 2018 , to pay for elementary and secondary school tuition.
Apart from that you can also contribute upto $2,000 per year in Coverdell education savings account . The amount you contribute isn’t deductible, but distributions from the account for payment of tuition are tax free.