Optional Tax Deductions

The Internal Revenue Code contains an array of personal tax deductions that taxpayers can take to reduce a tax liability. The IRS does not require taxpayers to take a single deduction. Taxpayers must voluntarily elect to take a deduction. However, you should always use any deduction for which you qualify.

The IRS gives you the option of deducting the amount of real estate taxes you pay that relates to a home you own. For property taxes to be deductible, the local jurisdiction that imposes the tax must fairly apply a uniform rate of tax on the value of all homes in the jurisdiction. If the tax favors some taxpayers over others in assessment amounts, the IRS will disallow the deduction. Additionally, if you receive special benefits in exchange for the payment of tax that others in the area do not receive, amounts you pay are not for deductible property taxes. Taxpayers who do not itemize deductions can choose the standard deduction and increase it by a maximum of $500 for property tax payments.

Taxpayers who make payments on a student loan can elect to deduct the interest portion of each payment. To qualify for the deduction, modified adjusted gross income (MAGI) cannot exceed $75,000. MAGI is the amount you report as adjusted gross income on a tax return increased by the amount of the student loan interest deduction. The maximum deduction you can take is $2,500. The deduction is available only to taxpayers who use the loan funds to attend a post-secondary educational institution that is eligible to participate in the U.S. Department of Education’s financial aid program.

If you suffer property damage or loss resulting from a sudden and unexpected event, such as a tornado or earthquake, you may be eligible to deduct the loss from taxable income. To qualify, you may not receive a reimbursement for the loss from an insurance company or other third party. The value of the deduction is the lower of the amount you pay for the property or the decrease in its fair market value immediately after the event. For example, if you pay $1,000 for a car and a tornado cracks the front windshield, the deductible loss is the expense of replacing a windshield if it costs less than $1,000. If replacing the windshield costs $2,000, you can only deduct the amount you pay for the car.

If a profession requires you to obtain work tools to properly complete job-related tasks, you can deduct the cost of the tools if an employer does not provide you with reimbursement. However, to fully deduct the cost of tools, they must not have useful lives beyond one year.

If you are part of a labor union, you can deduct the amounts you pay for initiation and annual membership. Additional amounts you pay to the union for unemployment benefits for union members are deductible. However, any amount you pay to support the union’s political and lobbying activities are not eligible for a tax deduction.