If you earn income from rental properties you may be eligible to claim a nice tax break: The 20% qualified business income (QBI) deduction is for self-employed individuals and owners of pass-through entities, such as LLCs, partnerships and S corporations. These individuals can deduct 20% of their QBI. The write-off also applies to some landlords with Schedule E rental income. There are lots of special rules and restrictions, most of which apply to people with taxable incomes, before the QBI deduction, of more than $383,900 on joint returns and $191,950 for all other returns. The QBI write-off is temporary. It ends after 2025 unless Congress extends it. 

There are two ways to qualify for the 20% QBI write-off for rental income. 

1. The first is if the rental activity rises to the level of a trade or business.
For this purpose, IRS regulations refer to the standard under tax code Section 162, the statute that generally governs the deductibility of trade or business expenses. 

There is no statutory or regulatory definition of a Section 162 trade or business. Instead, this determination is based on a taxpayer’s specific facts and circumstances. Some relevant factors are:

• The type of property (commercial or residential)
• Lease terms
• The extent of day-to-day involvement by the lessor or his or her agents
• The significance and type of ancillary services provided under the lease, and 
• The number of rentals.

Here are some best practices to treat your rental as a business: Keep expense receipts. Insure your realty. Keep separate bank accounts. And track time and services performed. 

2. A second way to qualify rental income as QBI is to meet an IRS safe harbor.
At least 250 hours must be devoted to the rental activity by the taxpayer, employees or independent contractors in a year. 

Time spent on the following counts: tenant services, repairs, property management, advertising, collecting rents, negotiating leases and supervising workers. 

Hours put in for driving to and from the property, arranging financing and constructing long-term capital improvements aren’t included. 

If you own multiple rental properties, you can treat each property separately or aggregate similar rental activities into commercial or residential categories. Those who use the safe harbor must meet strict recordkeeping requirements and attach an annual statement to their returns, as detailed in Rev. Proc. 2019-38. 

Contemporaneous records must detail hours, dates, and descriptions of the services and the people who performed them. If the services are done by contractors or employees, the taxpayers must keep logs of the work done by them, as well as proof of payment. 

Note: The safe harbor doesn’t apply to property leased under a triple net lease or if the owner’s personal use exceeds the greater of 14 days or 10% of the days rented. 

How rental income is reported
Treating rental income as QBI doesn’t change how you report that income. Real estate rental income is usually reported on Schedule E of the 1040. Also, the rental income generally isn’t subject to self-employment tax. If you qualify, you’d take the QBI write-off on Form 1040, line 13 and attach Form 8995 or 8995-A.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe. 

Retirement also gives you more command over your money. While you’re working, you have limited control over how often or how much you’re paid, which limits your ability to lower your taxes. But if you’re drawing retirement income from a combination of different types of accounts, you can control not only the amount you withdraw but also the sources of those withdrawals — and that could have a big impact on your taxes now and in the future. 

Conventional wisdom has long held that retirees should take money from their taxable brokerage accounts first, followed by traditional IRAs and other tax-deferred accounts, with Roth IRAs and Roth 401(k)s coming last. The logic behind this strategy is that it gives your tax-advantaged accounts more time to grow. Money in tax-deferred accounts isn’t taxed until you take withdrawals, and withdrawals from a Roth are tax-free as long as you’re 59 1/2 or older and have owned the account for at least five years. 

But in recent years, some retirement experts have questioned whether this is the most effective way to lower taxes on your retirement income and preserve your savings for your later years. Postponing withdrawals from your tax-deferred accounts could eventually lead to large, taxable required minimum distributions (RMDs currently start at age 73). 

And since those withdrawals are taxed at ordinary income tax rates, which range from 10% to 37%, large distributions could push you into a higher tax bracket and trigger Medicare high-income surcharges, says Wade Pfau, professor of retirement income at the American College of Financial Services and author of Retirement Planning Guidebook: Navigating the Important Decisions for Retirement Success. 

Roger Young, a certified financial planner and thought leadership director for T. Rowe Price, agrees. The conventional withdrawal sequence “bunches a lot of taxable income in the middle period, where pretty much all of your income is taxable,” he says. 

Retirees who have a mix of accounts could generate income more tax-efficiently by withdrawing from a combination of taxable and tax-deferred accounts, as well as making strategic conversions to Roth accounts, while remaining in a low tax bracket, Pfau says. One way to accomplish this goal is to withdraw enough from your taxable accounts to cover spending needs and income taxes. After that, calculate how much you can withdraw from your tax-deferred accounts and convert to a Roth while remaining within your desired tax bracket. 

In 2024, a married couple who files jointly can have up to $94,300 in taxable income and fall within the 12% tax bracket; for singles, the cutoff is $47,150. These thresholds are close to the points at which taxpayers can qualify for a 0% tax rate on long- term capital gains and qualified dividends (assets held for more than a year are subject to rates for long-term gains). In 2024, the 0% rate applies to capital gains and qualified dividends for singles with taxable income up to $47,025 and married couples with joint taxable income up to $94,050. 

Taking strategic withdrawals from a mix of taxable and tax-deferred accounts while remaining within these thresholds provides two benefits. You’ll pay taxes on your tax-deferred withdrawals at a low rate and reduce the size of those accounts, which will shrink your RMDs. You may also qualify for the 0% capital gains rate on income from your taxable accounts. 

Meanwhile, you’ll pay taxes on conversions from a traditional IRA to a Roth at a low rate, which will increase the amount of tax-free income you’ll have available in later years. Ideally, you should use assets from your brokerage or other taxable accounts to pay taxes on the conversions, Pfau says. 

If you postpone Roth conversions until you’ve depleted those accounts, you may have to use funds from your IRA to pay the tax bill. That’s not the end of the world, he says, because you’ll still benefit from having future tax-free income (and if you’re 59 1/2 or older, you won’t pay a 10% early-withdrawal penalty on those distributions). But it reduces the amount of money you’ll be able to invest in the Roth.

Taxes on Social Security

Converting funds in your traditional IRAs to a Roth can help reduce your taxable income later in life because, ideally, a large percentage of your withdrawals will come from your Roth. This will help you avoid what Pfau calls the Social Security “tax torpedo,” which occurs when up to 85% of your benefits are taxed. 

The formula for calculating tax on Social Security benefits is based on what Social Security defines as your provisional income (sometimes referred to as combined income), which is based on half of your Social Security benefits, plus other sources that contribute to your adjusted gross income, including withdrawals from traditional tax-deferred accounts; dividends, interest and capital gains from taxable investment accounts; and interest from municipal bonds. 

If your provisional income ranges from $25,000 to $34,000 for single filers, or $32,000 to $44,000 for joint filers, up to 50% of your benefits will be taxable. If your provisional income is more than $34,000, or $44,000 for joint filers, up to 85% of your benefits will be taxable. 

These thresholds aren’t adjusted for inflation, which means the percentage of retirees who pay taxes on their benefits has increased dramatically since the tax was signed into law more than 30 years ago. More than half of retirees pay taxes on a portion of their Social Security benefits, according to the Center for Retirement Research at Boston College. 

Withdrawals from a Roth aren’t included in your provisional income, so increasing the size of your Roth accounts through strategic conversions can help lower taxes on your benefits. If you’re able to delay filing for Social Security until age 70, which will maximize the amount of your monthly payouts, you’ll have more time to reduce the size of your tax-deferred accounts and convert some of your funds to a Roth, T. Rowe Price’s Young says. 

Charitable giving

If you plan to give funds in your tax-deferred accounts to charity, you may not need to accelerate certain withdrawals as much as you would otherwise. 

One strategy that can reduce your RMDs — and your tax bill — is to make qualified charitable distributions (QCDs), which are donations made directly from your IRA to qualified charities. You can make a QCD as early as age 70 1/2, but when you reach the age at which you’re required to take distributions, the charitable distribution will count toward your RMD. 

Although a QCD isn’t deductible, it will reduce your adjusted gross income, which will in turn reduce the provisional income used to calculate taxes on your Social Security benefits. In 2024, you can donate up to $105,000 directly from your IRA to a qualified charity. 

Alternatively, if you’re worried about giving away money you may need for long-term care or other late-in-life expenses, you can leave funds in your IRA to charity. The charity won’t have to pay taxes on the money, and you can leave more tax-friendly assets to your heirs. But this won’t absolve you from taking RMDs and paying taxes on those withdrawals while you’re still alive. 

Your estate and taxes

Shifting more of your assets to Roth accounts won’t just lower your taxes in your later years. It could also benefit your heirs if they end up inheriting money in those accounts. 

Under the SECURE Act of 2019, most adult children and other non-spouse heirs who inherit a traditional IRA or other tax- deferred account from an owner who died on or after January 1, 2020, have two options: Take a lump sum and pay taxes on the entire amount, or transfer it to an inherited IRA and deplete the account within 10 years of the death of the original owner. 

Depending on whether the original owner was taking RMDs when he or she died, the heirs may also have to take yearly withdrawals based on their life expectancy, which could mean paying taxes during their highest-earning years. (Spouses still have the option of rolling inherited IRAs into their own IRAs.) Because of confusion about the rules, the IRS has waived the RMD requirement for non-spouse heirs the past few years and is doing so again for 2024. 

The 10-year rule also applies to inherited Roth IRAs, but heirs aren’t required to pay taxes on the withdrawals or to take RMDs. That gives them plenty of flexibility, including the ability to wait until year 10 to deplete the account, thereby taking advantage of more than a decade of tax-free growth. 

If you have a large brokerage account with significant appreciation, you may want to consider preserving some of those assets for your heirs. Under current tax law, inherited investments receive a “step-up” in their cost basis to the current fair market value when the original owner dies. If your heirs turn around and sell those investments right away, they won’t pay tax on any gains, no matter how much the investments have increased in value since you purchased them. 

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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The IRS has identified five things you might do this summer that could impact your taxable income next year, along with some tax planning tips to help you navigate them. Here they are.

1. Wedding (Getting married)

Summer is a popular season for weddings, and the IRS reminds newlyweds to take steps to make future tax filings a bit easier.

• First, if there has been a name change, you must report it to the U.S. Social Security Administration to ensure that the name on your tax return matches your Social Security records. 
• Second, if you have moved, you should notify the United States Postal Service, your employers, and the IRS. 
• Note: Just so you know, you must complete and submit Form 8822 to officially change your mailing address with the IRS.

Updating these details now can help save time and avoid complications when filing your first tax return after getting married. 

Also, remember that whether you pay less income tax when you're married depends on several factors including tax deductions and credits you may claim, filing status (e.g., separately vs jointly), and your federal tax bracket.

2. Summer camp: Is it tax deductible?

Surveys show that good summer camps can be hard to get into in many areas of the U.S. But if you can send your child to a camp program this summer, the cost might qualify for the Child and Dependent Care Credit. 

• This credit is available for costs related to the care of children under age 13.
• The tax benefit can offset expenses associated with the care of those children, including summer day camp fees if the care is necessary for a parent(s) to work or look for work.

To take advantage of this tax break, keep detailed records of camp fees to ensure they meet IRS eligibility requirements. For more information, see Is Summer Camp Tax Deductible?

3. Summer jobs

Summer often brings opportunities for part-time and seasonal work. Even if you don't earn enough to owe federal income tax, the IRS recommends you file a tax return to receive any refunds.

Additionally, some people may have gig work or side hustles during the summer. The IRS offers some reminders:

• Earnings from these activities are taxable.
• Also, if you're paid through payment apps, you might receive an IRS Form 1099-K. 
• For more information, see Will You Get an IRS 1099K From Paypal, CashApp, etc.?

You can visit the IRS Gig Economy Tax Center online for more information on how these earnings can impact your taxes. Part-time and seasonal workers can visit IRS.gov or see Who is Required to Fle a Tax Return? for more information.

4. Home improvements

Some homeowners take advantage of the warmer weather to make energy-efficient home improvements. The good news is certain upgrades can provide tax benefits.

If you make qualified energy-efficient improvements to your home this year (or made them after Jan. 1, 2023), you might be eligible for tax credits. 

• For example, you may be eligible for the Energy Efficient Home Improvement Credit if you install qualifying upgrades like energy-efficient windows, doors, or heating and cooling systems. 
• Additionally, installing solar panels, wind turbines, or geothermal systems can qualify you for the Residential Clean Energy Credit. 

Due to the Inflation Reduction Act, these credits, available through 2032, can provide incentives of up to $3,200 for homeowners to invest in energy efficiency. Be sure to keep all receipts and documentation to claim these benefits.

5. Business travel: Tax deduction

Business travel doesn’t stop just because it’s summertime. All year round, tax deductions are generally available for the self-employed and certain other people who travel away from their home or principal place of work for business reasons. 

• If you are self-employed and travel for your work, you can generally deduct certain expenses like airfare, lodging, and meals, provided they are necessary and directly related to your business. 
• Keeping detailed records of all expenses is crucial to substantiate your deductions. 

Familiarizing yourself with IRS guidelines on business travel can help you maximize your deductions and reduce your taxable income. However, if you're uncertain whether you can deduct business travel expenses, consult a trusted tax advisor.

Summer 2024 and your taxes: Bottom line

Staying informed about how these and other activities affect your taxes helps you manage tax liability and potentially save money. Whether it’s keeping receipts for home improvements and travel, filing the necessary forms after a marriage, or claiming credits for childcare, a little planning can also make the next tax season less stressful. 

Always consult a qualified tax professional if you have questions about how specific activities may affect your personal tax situation.

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Here are some common IRS tax deductions and credits. Whether you are a homeowner, parent, charitable giver, older adult, or self-employed person, there are various ways to optimize your tax savings. 

IRS tax return common credits and tax deductions

If you haven’t filed your taxes yet (Tax Day was April 15 for most), you can use these and other tax breaks (if you are eligible for them) to reduce tax liability. If you have already filed, this information can help you plan to maximize your tax savings for the 2024 tax year (returns you file in early 2025).

Consult with a qualified tax professional to ensure you take full advantage of the credits and deductions available to you in compliance with tax laws. Doing so can help you to keep more of your hard-earned money and achieve greater financial stability. 

Note: This is a list of common tax deductions and credits that may be available to you. Please note that it is not exhaustive and does not include any particular order or ranking.

The standard deduction

If you are like most taxpayers, you take the standard deduction instead of itemizing deductions. 

• The standard deduction reduces your taxable income by a predetermined, fixed dollar amount.
• Itemized deductions can also reduce your taxable income, but the amount varies and is not predetermined.

However, to decide whether to itemize, you must know the standard deduction amount for each tax year. See What’s the Standard Deduction for 2024?

Family-focused tax credits

Child Tax Credit: The child tax credit (CTC) allows eligible parents and caregivers to reduce their tax liability, possibly resulting in a tax refund. However, not everyone can claim the CTC, and credit amounts can differ for those who can. The child tax credit is based on income, filing status, the number of children, and whether the IRS considers your dependent a qualifying child. For more information on the 2024 CTC (for tax returns filed now, see Child Tax Credit: What You Need to Know.

Earned Income Tax Credit (EITC): Aimed at individuals and families with low to moderate income, the EITC is a refundable tax credit based on earned income and family size. It can financially boost working individuals, especially those with children, but is also available to some taxpayers without children. Unfortunately, many eligible individuals are unaware of the credit or don’t know how to claim it, resulting in it being overlooked.

Child and Dependent Care Credit: The Child and Dependent Care Tax Credit can help you pay for childcare or dependent care services to enable you to work or search for a job. 

• You can claim up to $3,000 of eligible childcare expenses for one qualifying individual or up to $6,000 for two or more qualifying individuals. 

This is a non-refundable tax credit, meaning it can reduce your federal income tax bill, but you cannot receive the credit as a tax refund. Learn more at Summer Camp Tax Breaks for 2024.

Adoption Credit: The adoption credit is available for taxpayers who adopt or start the adoption process in a given tax year. The credit can be applied to international, domestic, private, and public foster care adoptions. However, it does not apply to those who adopt their spouse's child. The federal adoption tax credit for the 2024 tax year is worth up to $16,810 (inflation-adjusted yearly), but income limits apply.

Homeowner tax deductions

Mortgage Interest Deduction: Homeowners can deduct the interest paid on mortgage loans, reducing taxable income. This deduction can be particularly beneficial during the early years of a mortgage when interest payments are higher. How much you can deduct might depend on when you bought your home and your filing status. For more information, see Deducting Mortgage Interest on Your Tax Return.

Mortgage Points: Points paid at the time of mortgage origination can often be deducted in the year they were paid, potentially lowering taxable income.

Gains on Home Sale: Individuals who sell their primary residence may qualify to exclude a portion of the capital gains from their taxable income, provided they meet certain ownership and use requirements. This is known as the capital gains tax exclusion for home sales.

Energy-Efficient Home Improvements: Taxpayers who invest in energy-efficient home improvements may be eligible for tax credits. For example, homeowners can lower their federal income tax bills by installing new energy-efficient windows, doors, water heaters, furnaces, air conditioners, and solar panels.

Medical deductions

Medical Expenses: Taxpayers who itemize deductions can deduct qualifying medical expenses that exceed a certain percentage of their adjusted gross income (AGI), which can provide some relief for substantial healthcare costs.

Health Savings Account (HSA) Contributions: Contributions to an HSA are tax-deductible and can be used to pay for qualified medical expenses, offering a tax-efficient way to save for healthcare costs.

Long-term Care Insurance Premiums: Long-term care insurance provides benefits to policyholders dealing with long-term care expenses. If your insurance premiums are substantial, you may be eligible to claim a deduction for some or all of the amount you pay to keep your policy. This can help decrease your tax liability. However, it is important to remember that this tax benefit has certain IRS limitations.

Education credits and deductions

Student Loan Interest Deduction: If you paid interest on your student loan last year, you might be eligible for a tax deduction worth up to $2,500. By using this deduction, you can lower your taxable income. 

• However, the IRS has specific rules for who can claim the student loan interest deduction; only some are eligible for the maximum amount. 

For more information, see How to Claim the Student Loan Interest Deduction.

AOTC: The American Opportunity Tax Credit (AOTC) is a partially refundable tax credit available to those currently enrolled in college. Eligible taxpayers can claim 100% of the first $2,000 spent on qualified education expenses and 25% of the next $2,000. The maximum credit is $2,500 per qualifying student. If the credit exceeds the tax owed, you can receive a refund for 40% of the remaining amount, up to $1,000 per qualifying student.

Lifetime Learning Credit: The Lifetime Learning Credit (LLC) is worth up to $2,000 per tax return and can be claimed for an unlimited number of years. However, the credit is not refundable. Unlike the American Opportunity tax credit, graduate students are eligible to claim the LLC, and students do not need to attend college at least half-time to qualify. 

For more information, see 11 Education Tax Credits and Deductions.

Work-related tax deductions

Home Office Tax Deduction: Self-employed individuals are typically eligible to deduct expenses related to their home office. Here's more about the home office tax deduction.

Educator Expense Deduction: The educator expense tax deduction (also called the teacher deduction) allows some teachers, counselors, principals, or other instructors to write off classroom expenses and supplies on federal income tax returns. For the 2024 tax year, the maximum educator expense deduction is $300.

Military Moving Expenses: Active-duty U.S. military personnel who relocate due to a military order and permanent change of station may be able to deduct certain moving expenses not reimbursed by the military.

Special deductions for older ddults

Qualified Charitable Distributions: If you are 70½ or older, you can make qualified charitable distributions (QCDs) directly from your IRA to eligible charitable organizations. 

• These distributions can be helpful for retirees who want to support charitable causes while minimizing their tax liability. 
• QCDs fulfill required minimum distributions (RMDs) without being included in adjusted gross income (AGI).

Extra Standard Deduction: Once you turn 65, you become eligible for an extra standard deduction in addition to the regular standard deduction. This extra deduction reduces taxable income, potentially allowing retirees to keep more of their hard-earned money.

Energy tax credits

EV Tax Credit: To encourage people to purchase electric vehicles (EVs), the federal government offers a tax credit of up to $7,500 for certain "clean vehicles." The EV tax credit amount depends on factors like the vehicle's sourcing, assembly, and when it was put into service.  Used EVs may also qualify for a tax credit of up to $4,000. Due to new EV tax rules, as of January 1, 2024, you may be able to take the clean vehicle credit as a discount at the point of sale, when purchasing the vehicle from a registered dealer. (Income limits apply to the EV credit.)

EV Charger Tax Credit: If you install an electric vehicle charging station at home, you can receive a federal EV charger tax credit equal to 30% of the cost of hardware and installation expenses. The maximum credit amount is $1,000. Additionally, starting last year, the EV charger tax credit for home and business installations applies to other EV charger equipment like bidirectional (two-way) chargers.

Miscellaneous tax deductions and credits

Charitable Contributions: Donations made to qualifying charitable organizations are tax-deductible for those who itemize, which can incentivize philanthropic giving. Be sure to contribute to legitimate charities and get and keep receipts for your donations. The IRS says that in most cases, the amount of charitable cash contributions taxpayers can deduct as an itemized deduction is usually limited to 60% of the taxpayer’s adjusted gross income.

Jury Duty Pay Returned to Employer: If an employer continues to pay an employee's salary while serving jury duty and requires the employee to turn over the jury duty pay, the employee can deduct the amount turned over to the employer. Keep in mind that jury pay is taxable income.

Gambling Losses: While gambling winnings are taxable, taxpayers can deduct gambling losses up to the amount of their winnings if they itemize deductions. For more information, see Taxes on Gambling Winnings and Losses.

Bad Debt (Uncollected): If you have previously included an amount in your income and cannot collect it, you may be able to deduct it as a bad debt. Check out IRS Topic 453 for more information.

Saver’s Credit: People with low to moderate incomes who contribute to retirement savings accounts may qualify for a tax credit designed to encourage retirement savings.

•  If your income falls within the credit limits, you can claim up to $1,000 for single filers or $2,000 for joint filers.

As Kiplinger has reported, for those who qualify for the Saver's Credit, the lower your income, the higher the percentage of retirement plan contributions you get back on your tax return.

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However, the IRS has strict rules for who can claim the deduction, and not everyone qualifies for the maximum amount.

So, how much student loan interest — if any — can you deduct this year? Here’s what you need to know.

Student loan interest deduction 

The student loan interest deduction is among the most overlooked tax deductions, but qualifying for this tax break might be easier than you think. For example, both private and federal student loans qualify, and both required and voluntary interest payments are deductible. 

Also, current students and graduates can benefit from the deduction, and in some cases, you can deduct student loan interest even though a parent pays your loan. Parents who took out student loans for their dependents are also often eligible (more on that below).

And while only student loans taken out solely to pay higher education expenses qualify, most types of education expenses are eligible.

• Tuition and fees are qualified education expenses
• Room and board expenses qualify
• Loans used for books, supplies, and equipment qualify
• Even transportation expenses qualify

Is student loan interest an itemized deduction? There is no need to itemize deductions to claim student loan interest. You can claim the student loan interest deduction even if you take the standard deduction. 

Qualified education expenses and institutions: The student loan interest deduction isn’t limited to four-year college students. For the deduction, any of the following postsecondary educational institutions qualify if they are eligible to participate in a student aid program administered by the U.S. Department of Education.

• Colleges (includes community college)
• Universities 
• Vocational schools
• Institutions that conduct internships or residency programs that lead to a degree or certificate from one of the above institutions or a hospital or healthcare facility that offers postgraduate training

Additionally, the IRS says the student loan interest must have been “paid or incurred within a reasonable period before or after you took out the loan.” However, you can only deduct student loan interest for the year you paid it. 

Who can deduct student loan interest? 

To deduct student loan interest, you must have taken out the loan for yourself, your spouse, or someone who was your dependent when you took out the loan. (A dependent generally refers to a qualifying child or qualifying relative.) So, paying interest on a loan taken out for your child typically counts for purposes of the deduction. 

Can you deduct student loan interest if you didn’t make any payments? In some cases, you can claim the student loan interest deduction even if you were not the one to make payments (for example, if a parent made loan payments on your behalf). To deduct loan interest paid by a parent or anyone else, all of the following must be true:

• You must be legally responsible for repaying the loan.
• You can no longer be claimed as a dependent.
• Your filing status is not married filing separately.

(Note: The above criteria apply even if you made payments on your own student loans.) 

Income limit for the student loan interest deduction 

There is one more test for qualifying for the student loan interest deduction, and it’s based on your modified adjusted gross income (MAGI). The income limit is set annually for each filing status. Here are the 2023 income and phase-out limits:

How much student loan interest can you deduct? You might not qualify for the full $2,500 deduction even if your MAGI falls below the amount set for your filing status. That’s because $2,500 is the maximum amount you can deduct each year. Your deduction is limited to the actual amount of student loan interest you paid during 2023. 

• So, if you paid $800 in student loan interest, your deduction is limited to $800. 
• And if you paid $3,000 in interest, you won’t be able to deduct more than $2,500.

Student loan interest deduction form 

You should receive Form 1098-E from your lender if you paid $600 or more in student loan interest last year. However, you can still deduct student loan interest if you do not meet the $600 threshold. So, if you made student loan payments but haven’t received a Form 1098-E for 2023, it’s a good idea to contact your loan servicer and request a statement of interest paid. Some borrowers may be able to find this information by visiting their online account. 

If you still have doubts about whether or not you qualify for the student loan interest deduction this year, you can visit the IRS Interactive Tax Assistant (ITA) tool for answers. The process will take approximately 10 minutes, and you will need the following information before you begin.

• Filing status
• Basic income information
• Your adjusted gross income (AGI)
• Educational expenses paid with nontaxable funds

MAGI limits for taking the student loan interest deduction are inflation-adjusted each year. So, if you don’t qualify for 2023, you might be able to claim the deduction next year. Additionally, there are several other education tax breaks, including the Lifetime Learning Credit and American Opportunity Credit, available to students and graduates. 

For more information about tax breaks for college students and their families, see Kiplinger's report Eleven Education Tax Credits and Deductions.

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The fact is that sometimes, a physician's note isn't enough to make certain products eligible The IRS is warning taxpayers that some marketing campaigns misrepresent what is HSA-eligible and what isn’t.

Here’s what you need to know to avoid tax penalties from the IRS when it comes to HSA-eligible items.

Non-eligible HSA expenses 

Food and wellness expenses are rarely considered HSA-eligible, despite the “food as medicine” movement that has swept the nation. Food items related to special diets, even when suggested by a doctor, can draw scrutiny from the IRS. 

The same is true for other wellness items, such as fitness trackers and gym memberships. But that hasn’t stopped some companies from suggesting otherwise.

“Taxpayers should be careful to follow the rules amid some aggressive marketing that suggests personal expenditures on things like food for weight loss qualify for reimbursement when they don’t qualify as medical expenses,” said IRS commissioner, Danny Werfel in a release.

• Notes from doctors “based merely on self-reported health information” don’t qualify as legitimate documentation for making food and wellness products (or services) HSA-eligible.
• To make what would normally be considered a personal expense (weight loss programs, nutritional drinks, etc.) HSA-eligible, the expense must be “related to a targeted diagnosis-specific activity or treatment.”

Note: The same rules apply to a flexible spending account (FSA). 

HSA-eligible expenses

To avoid scrutiny from the IRS, consumers should skip receiving a doctor’s note from companies selling wellness items online. Instead, patients can see their doctors, whether in person or via telehealth and request a letter of medical necessity (LMN) and prescription for wellness items related to the treatment of their health conditions. 

• For example, doctors may recommend a gym membership to treat hypertension.
• Doctors may write an LMN for a fitness tracker for a patient who suffers from obesity.
• Supplemental nutrition drinks may be prescribed to patients with low appetites as a result of a chronic illness.

Of course, simply requesting an LMN from your doctor doesn’t guarantee you’ll receive one. But if you do have a legitimate doctor’s note, it is possible that the full cost of your purchase will not be considered HSA-eligible. 

For food and beverages, only the portion of the expense that exceeds the cost of a product that “satisfies normal nutritional needs” is deductible. For example, if an enhanced drink costs $12, but a similar drink that merely satisfies normal nutrition needs costs $8, only $4 is deductible.

Using an HSA for fitness or weight loss 

The IRS says taxpayers should not be afraid to use their HSA funds for qualifying expenses, but they should make sure they follow the rules and keep good records. Keep copies of LMNs, prescriptions, and all receipts for eligible items, whether you made purchases with your HSA debit card or received a reimbursement. 

Does HSA spending trigger an audit? The IRS doesn’t monitor how you spend your HSA funds throughout the year, but that doesn’t mean they won’t ask for proof that your expenses were eligible. And if your tax return contains unrelated IRS audit red flags, your risk for an HSA audit could increase. 

• If the IRS determines your expenses are not HSA-eligible, the ineligible expenses will be subject to income tax and a 20% penalty (if you are under age 65). 
• Also, make sure you don’t exceed HSA contribution limits each year. 
• If you made excess contributions, the IRS says you should withdraw the excess amount before the tax deadline (April 15, 2024) to avoid a 6% penalty.

HSA rules

What are the rules for an HSA when you turn 65? If you are 65 or older, you can take distributions for any reason without paying the 20% penalty. However, distributions for expenses that are not HSA-eligible are still subject to ordinary income tax. However, if you enroll in Medicare, you will no longer be eligible to make HSA contributions.

Related Content

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• IRS Tax Breaks That Get Better With Age
• 10 Most-Overlooked Tax Deductions and Credits
• Record High HSA Limit for 2024: What to Know

Knowing which tax regulations and benefits link to which ages can aid in tax planning and potentially reduce your tax burden before and during retirement.

To get you started, here is a list of six tax breaks that change as you get older and the associated ages at which you can become eligible. As always, and in any case, if you are unsure whether any tax provision, credit, or deduction applies to you, consult a trusted tax professional or financial advisor.

Related: Should You Let the IRS Do Your Taxes?

Extra tax breaks for people 50 or older

Note: The following is a short list of some common tax changes and amounts that depend, at least in part, on your age. This list is not exhaustive, meaning it does not include all tax provisions triggered by age nor all tax credits and deductions available for (or rules applicable to) people 50 and older.

Contribution limits over 50

If you are 50 or older, you can take advantage of catch-up contributions to retirement accounts such as IRAs and 401(k)s. These contributions allow additional savings beyond standard annual contribution limits, which can help bolster your retirement funds. 

According to the IRS, the limit on annual contributions to an IRA increased to $7,000 for 2024, up from $6,500 for the 2023 tax year. The SECURE 2.0 Act changed the IRA catch‑up contribution limit for individuals age 50 and over to include an annual cost‑of‑living adjustment but remains $1,000 for 2024. (So, the total annual IRA contribution if you are 50 and older is up to $8,000.)

The 401(k) catch-up contribution limit for employees age 50 and older and those participating in 403(b) and most 457 plans and the federal government’s Thrift Savings Plans is $7,500 for 2024. 

• Participants in 401(k), 403(b), and most 457 plans, as well as the federal government's Thrift Savings Plan who are 50 and older, can contribute up to $30,500 in 2024. (That’s the $23,000 limit plus the catch-up of $7,500.)
• The catch-up contribution limit for employees 50 and over participating in SIMPLE plans is $3,500 for 2024.

Note on a catch-up contributions change for high earners: Under the SECURE 2.0 Act, passed a couple of years ago, if you are at least 50 and earned $145,000 or more in the previous year, you can make catch-up contributions to your employer-sponsored 401(k) account. But there’ is a catch. Beginning in 2026, you must make those extra contributions on a Roth basis, using after-tax money. 

• When the IRS implements the rule, you won’t be able to get tax deductions on those catch-up contributions as you would with typical 401(k) contributions.
• But you could withdraw the money tax-free when you retire. 
• The SECURE 2.0 Roth catch-up contribution rule won’t apply to taxpayers making $144,999 or less in a tax year.

What about HSA contribution limits? If you are 55 or older by the end of the tax year, the IRS says you can increase your annual HSA contribution by up to $1,000 a year. As Kiplinger has reported, the IRS announced record-high HSA contribution limits for 2024. Individuals can contribute up to $4,150 to their HSA accounts for 2024, and families can contribute up to $8,300. (As Kiplinger reported, the IRS just announced that HSA limits are rising again for 2025.)

Early withdrawal penalty

People age 59½ and older can make penalty-free withdrawals from traditional IRAs and 401(k)s, avoiding the usual 10% early withdrawal penalty. Penalty-free withdrawals can give you more flexibility in accessing retirement savings and managing finances.

• Qualified distributions (i.e., from a Roth account at least five years old since you first contributed and when you are 59½ years or older) are tax-exempt. 

Additionally, if you are 65 and older, you can withdraw HSA funds for non-medical expenses without paying the additional tax penalty. However, ordinary income tax rates apply to distributions for medical expenses other than qualified ones. 

Free tax help

The IRS offers tax counseling for people age 60 and older. (If you have a joint tax return, only one spouse must meet the age threshold.) This counseling program, known as TCE, or Tax Counseling for the Elderly, operates in partnership with the AARP Foundation’s Tax-Aide program. It utilizes IRS-certified volunteers specializing in pensions and other retirement-related concerns unique to older adults. The IRS provides an online lookup tool to find a TCE provider. 

There are also several other ways to file taxes for free this tax season, not tied to age. For more information, see Ways to Free File Your Taxes This Year.

Extra standard deduction: 65 and older

Once you turn 65, you become eligible for an additional standard deduction on top of the regular standard deduction. This extra deduction reduces taxable income, potentially lowering overall tax liabilities and allowing retirees to keep more of their hard-earned money.

However, the amount of this extra standard deduction can vary based on factors like filing status and whether you or your spouse are 65 or older. Another factor is whether you or your spouse is blind.

• If you have yet to file your 2023 tax return, the additional standard deduction for the 2023 tax year is $1,850 if you are single or file as head of household. If you are married, filing jointly or separately, the extra standard deduction amount is $1,500 per qualifying individual. 
• If you are 65 or older and blind, the 2023 extra standard deduction is $3,700 if you are single or filing as head of household. It's $3,000 per qualifying individual if you are married, filing jointly or separately.
• For information on the extra standard deduction amounts for 2024 (tax returns you’ll file in 2025), see Kiplinger’s report: The Extra Standard Deduction for 65 and Older.

Charitable IRA rollover: QCDs

If you are 70½ or older, you can make qualified charitable distributions (QCDs) directly from your IRA to eligible charitable organizations. These distributions can be helpful for retirees who want to support charitable causes while minimizing their tax liability. QCDs fulfill required minimum distributions (RMDs) without being included in adjusted gross income (AGI).

• QCDs are not subject to tax.
• You can benefit from a QCD even if you claim the standard deduction. (However, a QCD is not deductible as a charitable contribution.)
• There are other rules to follow and a limit: For 2024, the IRA QCD limit is $105,000. For the 2023 tax year (if you haven’t yet filed), the limit is $100,000. For married couples, each spouse can exclude up to the limit for a total, for the 2023 tax year, of up to $200,000 and for 2024, up to $210,000.

A note on RMDs: Due to changes brought about by the SECURE 2.0 Act, 73 is the age at which you must start taking distributions from retirement savings accounts (other than Roth IRAs). You have until April 1 of the following year to take your first required minimum distribution. Different RMD rules may apply to inherited IRAs.

Property tax relief

Some states offer property tax breaks or exemptions for older adults, usually 65 or older, but some states may offer property tax relief to those under 65. These tax breaks, which vary from state by state based on factors like age, income, or disability status, can relieve property tax burdens, enabling older homeowners to maintain financial stability and remain in their homes during retirement.

To find information about potential property tax relief, visit your state’s government website or contact your state Department of Revenue for guidance on tax credits available for housing, real estate, and property taxes.

Related

• The Extra Standard Deduction for People Over 65
• Property Tax Cap: Does Your State Have One?
• Tax-Savvy Charitable Giving With QCDs
• Calculating Taxes on Social Security Benefits

Last-minute tax savings for IRA contributions

If you’re not enrolled in a workplace retirement plan, you can deduct a contribution to an IRA of up to $6,500, or $7,500 if you were 50 or older, for 2023. You have until April 15, 2024, to make your 2023 contribution.

Contributions to a traditional IRA will reduce your adjusted gross income (AGI) on a dollar-for-dollar basis, which could also make you eligible for other tax breaks tied to your AGI.

Workers who have a company retirement plan but earn less than a certain amount may qualify to deduct all or part of their IRA contributions for 2023. 

• This deduction phases out for single taxpayers with AGI of between $73,000 and $83,000 and for married couples who file jointly with AGI of between $116,000 and $136,000. 
• If one spouse is covered by a workplace plan but the other is not, the spouse who isn’t covered can deduct the maximum contribution, as long as the couple’s joint AGI doesn’t exceed $218,000.
• A partial deduction is available if the couple’s AGI is between $218,000 and $228,000.

If you worked for yourself in 2023 or had a side gig, you may be able to sock away even more money — and significantly lower your tax bill. You have until April 15 — or October 15 if you file for an extension — to set up and contribute to a SEP IRA, a retirement plan designed for self-employed workers, small businesses and sole proprietors. For 2023, you can deduct contributions of up to 20% of net self-employment income, up to a maximum of $66,000.

Roth IRA contribution deadline for 2023

You also have until April 15 to contribute to a Roth IRA for 2023. Contributions to a Roth are after-tax, so they won’t lower your tax bill. But if you’re 591⁄2 or older and have owned your Roth for at least five years, withdrawals are tax-free. Contributing to a Roth will also protect your savings from future tax hikes. Here, too, there are income limits for 2023.

• Single taxpayers with modified adjusted gross income (MAGI) of $138,000 or less can contribute the full amount.
• Those with income of between $138,000 and $153,000 can make a partial contribution.
• Married couples who file jointly can make the full contribution if their MAGI is $218,000 or less.
• Those with modified adjusted gross income between $218,000 and $228,000 can make a partial contribution.

In the past, you could make only pretax contributions to a SEP, but legislation enacted in late 2022 allows SEP providers to offer a Roth option. However, because this change is relatively new, you may have a hard time finding a provider who has started to offer a Roth SEP.

When considering whether to invest in a deductible IRA or a Roth, look at your time horizon, says Lowell Smith, cofounder of IRALOGIX," which provides tech-driven IRA solutions to the wealth management industry. If you’re still years away from retirement, the Roth may be the better option because you’ll enjoy years of tax-free growth, he says. If you plan to retire within 10 years, you may want to opt for the deductible IRA.

Save for health care costs

You have until April 15 to set up and fund a health savings account (HSA) for 2023. To qualify, you must have had an HSA-eligible insurance policy in 2023 that started no later than December 1. The policy must have had a deductible of at least $1,500 for individual coverage or $3,000 for family coverage. 

You can contribute up to $3,850 to a 2023 HSA if you had single coverage or $7,750 if you had family coverage. You can contribute an additional $1,000 if you were 55 or older in 2023. 

Contributions reduce your adjusted gross income. The money in your account will grow tax-free, and withdrawals to pay medical expenses are also tax-free.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

Related Content

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• 10 Most-Overlooked Tax Deductions and Credits

As you’re filling out your 2023 Form 1040 you may ask whether you should itemize on Schedule A or take the standard deduction. Most filers take the standard deduction because it’s higher than their total itemizations. But not all. 

Take people with big medical bills. Itemizers can claim medical expenses not reimbursed by insurance, for themselves, their spouse and dependents. The cost must be incurred primarily to alleviate or prevent a physical or mental disability or illness. But there is a floor. Medical expenses are deductible only to the extent the total exceeds 7.5% of your adjusted gross income (AGI). For example, if you itemize, your AGI is $100,000 and your total medical expenses are $9,000, you can deduct only $1,500 of medical expenses on Schedule A ($9,000 - $7,500).

The list of eligible medical expenses for tax deductions is broader than most people think. It includes:

• The basics: Such as out-of-pocket payments to doctors, dentists, optometrists and other medical professionals; mental health services; hospital stays; annual physicals; health insurance and Medicare premiums; prescription drugs; insulin; glasses and contact lenses; hearing aids; and dental work, such as braces and root canals.
• In vitro fertilization: Amounts paid for IVF qualify as medical expenses. 
• Medical driving: The 2023 standard mileage rate is 22¢ per mile. It's 21¢ per mile in 2024.
• Treatment for drug use or alcoholism: This cost is considered a medical expense.
• Health and wellness costs: Among other health and wellness costs that qualify as deductible medicals are smoking cessation programs, nutritional counseling for a doctor-diagnosed disease, weight-loss programs and certain special food to help with the treatment of obesity, hypertension, heart disease or other physical illnesses diagnosed by a physician. 
• Long-term care costs: If you, your spouse or your dependent requires long-term care you may be able to deduct the unreimbursed costs as medical expenses. Long-term-care expenses include the costs of assisted living, in-home care and nursing home services. The long-term care must be medically necessary for one who is chronically ill. The costs of meals and lodging at an assisted living facility or a nursing home count as medical expenses for people mainly there for medical care. Premiums you pay for a long-term-care policy are deductible medicals, too. But the deduction is capped based on age. The older you are, the greater the write-off. 
• Certain home improvements to adapt to a disability or illness: For instance, ramps, wide doorways or entrances, railings and wheelchair lifts.
• The cost of a service dog: Veterinary costs for a service dog to assist the visually impaired and others with physical disabilities are eligible for medical expense deductions. The same is true for the cost of buying and training the dog, plus feeding and grooming. An emotional support animal counts if needed primarily for the owner’s medical care to alleviate a mental disability or illness.
• COVID-19 personal protective equipment: Masks, hand sanitizers and other supplies bought for the primary purpose of preventing the spread of COVID-19.
• The cost of a legal abortion: The procedure must be performed in a state where abortion is legal. Transportation costs are deductible. Hotel expenses of up to $50 a night can also be deducted if the abortion is provided by a doctor in a licensed hospital or a medical care facility. You can take up to an additional $50 a night for a traveling companion’s lodging.
• Genetic testing through DNA ancestry registries: If you use a DNA ancestry for genetic health testing, such as 23andMe, the portion of the DNA collection kit's cost that pertains to genetic testing may be treated as a deductible medical expense. 

Among the costs that do not qualify as deductible medical expenses:

• Most food, weight loss supplements or low-calorie beverages. 
• Weight-reduction programs or cosmetic surgery procedures to improve your appearance.
• Gym membership fees. 
• Teeth whitening and hair transplants.
• An elevator installed in your home (it adds value to your house).
• Over-the-counter medications that are bought without a prescription.
• Amounts paid for marijuana and other substances that aren't legal under federal law. It doesn't matter whether they are legal under state law.
• Illegal operations or treatments.
• Amounts paid to or for a gestational surrogate, including costs to identify and retain the surrogate and the person's medical expenses.

For more details on these and other qualifying and nonqualifying medical expenses, see IRS Publication 502, Medical and Dental Expenses.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe. 

Here’s what you should know about claiming the mortgage interest deduction on your federal income tax return.

How does mortgage interest deduction work?

The mortgage interest deduction allows homeowners to deduct the interest they pay on their home mortgage from their taxable income. This can help homeowners lower tax bills by reducing their taxable income. 

However, taxpayers can only deduct mortgage interest if they itemize deductions. This means you cannot claim the standard deduction and deduct mortgage interest in the same tax year. 

Is it worth itemizing to deduct mortgage interest? It wouldn’t make sense to take the mortgage interest deduction if your total itemized deductions (which can include mortgage interest, charitable contributions, state and local income taxes etc.) are less than the 2024 standard deduction for your filing status.

• For 2024, the standard deduction is $14,600 for married filing separately and single filers.
• Head of household filers have a standard deduction of $21,900 for the 2024 tax year.
• If you are married and filing jointly or file as a qualifying widow(er), your 2024 standard deduction jumps to $29,200.

Mortgage interest deduction limit 2024

As stated earlier, your mortgage interest deduction limit depends on when you purchased your home and your filing status.

• If you purchased your home before Dec. 16, 2017 and are a single or joint filer, you can deduct interest paid on the first $1 million of your mortgage.
• If you are married and filing separately, your allowable mortgage interest deduction is limited to interest paid on the first $500,000, even if you purchased the home prior to Dec. 16, 2017.
• For homes purchased after the above date, the allowable mortgage interest tax deduction drops to interest paid on the first $750,000 for single and joint filers and to $375,000 for married couples filing separately.

(Note: If you purchased your home after Dec. 15, 2017, you might qualify for an exception. According to the IRS, a taxpayer who “enters into a written binding contract before December 15, 2017, to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018, is considered to have incurred the home acquisition debt prior to December 16, 2017”.)

What mortgage interest is tax deductible?

To take the mortgage interest deduction, the interest paid must be on a “qualified home.” Your first and second home may be considered qualified homes, but there are some exceptions.

• If you rent out your second home, the home only qualifies if you use it “more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer.” 
• If you have more than one second home, you can only use one of them as a qualifying second home during the tax year.
• If you have a home office in your home, your property can still be considered a qualified home. However, you must allocate the use of your home. 
• A home under construction cannot be considered a qualifying home unless it becomes a qualifying home when it is ready for occupancy.
• A home under construction cannot be considered a qualifying home for a period longer than 24 months.
• If you rent out a portion of your home, the home won’t qualify if you rent to more than two tenants during the tax year or rent an area of the home that has its own sleeping, cooking, and toilet facilities.

(Note: Multiple tenants who share the same sleeping quarters are considered one tenant by the IRS.)

Writing off mortgage interest

You may be able to deduct more than just the interest paid on your qualifying first and second home. Here are some other expenses that may be tax-deductible:

• Late payment fees
• Prepayment penalties (if you incur an additional expense for paying off your mortgage early)
• Interest on a home equity line of credit (HELOC) that was used to improve a qualifying home.
• Points paid (may be referred to as loan origination fees, maximum loan charges, loan discount, or discount points)

Not all points are fully deductible. The IRS provides a flowchart that can help you determine whether or not your mortgage points are fully deductible for the 2024 tax year.

What costs don’t qualify as mortgage interest? Costs that you can’t claim as a mortgage interest tax deduction include homeowners insurance, mortgage insurance premiums, and title insurance. Here are some other expenses that are not tax-deductible.

• Unpaid interest on a reverse mortgage
• Down payments
• Closing costs
• Appraisal and notary fees
• Closing costs
• Interest on HELOC loans where funds were not used to improve your qualifying property

How to claim the IRS mortgage interest deduction

If you paid more than $600 in mortgage interest last year, keep an eye out for a Form 1098 from your mortgage lender in early 2025. A copy of this form will also be sent to the IRS. In most cases, homeowners can report the amount on this form on line 8a of Schedule A (Form 1040). However, the allowable deduction amount may differ in certain circumstances, such as if the property isn’t considered a qualified home.

Remember that you’ll need to itemize your deductions if you choose to take the mortgage interest tax deduction. This can make preparing your taxes more complex than if you take the standard deduction, so you might find it helpful to work with a tax professional to make the process easier. 

For more information about claiming the mortgage interest tax deduction, see IRS Publication 936.

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