This article takes a look at the 5 overlooked tax deductions for retirees that could save them money. If you wish to check out our detailed analysis, you may go to 13 Overlooked Tax Deductions for Retirees That Could Save Them Money.
5. Retirement Plan Contributions
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The most important deductible contribution seniors over 50 can avail is on their IRAs or 401(k)s. The 50s is usually the age when seniors have their kids moving out and becoming independent, and careers pay the most as they are their highest earning years. In such a scenario, maximizing retirement plans is the best way to move forward. As of 2024, the contribution limit for those who participate in 401(k) and 403(b), and similar retirement plans is $23,000. Moreover, people over 50 can contribute an additional $7,500 to their accounts. These contributions are generally deductible from your taxable income.
4. Home Ownership and Sales
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In terms of home ownership, individuals may deduct the interest on their mortgage and any points incurred and paid when acquiring a mortgage. In addition, they may claim up to $10,000 in real estate taxes paid. While the one-time capital gains exemption tax no longer applies, seniors who are looking to downsize and sell their homes can also receive up to $250,000 (or $500,000 for married couples filing jointly) capital gains tax exemption for a home sale. The requirement is that they must have owned and lived in the home for at least two years before they sell it.
3. State Tax Exemptions
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State income taxes present an additional challenge for seniors, as the tax landscape varies across states, influencing their overall tax obligations. While some states extend tax benefits to seniors and exclude social security income from taxation, others lack such provisions. Moreover, several states offer senior tax exemptions linked to income thresholds.
Seniors with lower incomes might qualify for partial or complete exemptions from specific state taxes, such as income or property taxes. Additionally, certain states grant property tax exemptions or reductions to seniors, promoting housing affordability. Sales tax exemptions on specific goods and services tailored for seniors are also implemented in some states. To optimize tax advantages, seniors and their families should be informed about these exemptions and explore ways to leverage them effectively.
2. Lifetime Learning Credit
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Eligible students, even seniors, who are enrolled in any eligible educational institution can avail of the lifetime learning credit. This credit helps in paying for undergraduate, graduate, and professional degree courses. As such, there is no limit to the number of years on which the credit can be claimed. This credit is worth up to $2,000 per tax return.
1. Casualty and Theft Losses
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Many taxpayers are unaware that they can gain deductions in case they face natural disasters and catastrophic events that they can prove are not their fault. Deductions for casualty and theft losses are restricted to singular, extraordinary events that deviate from the routine aspects of daily life. Moreover, the occurrence must be unrelated to the individual’s active engagement when it transpired, such as an unforeseen automobile accident. Examples include natural disasters like earthquakes, fires, floods, hurricanes, and storms.
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