Income Tax Tips for Renters
Most Americans want to save money on their taxes, but many of us let deductions go unclaimed every year. The common perception is that unless you own a home most deductions are not an option for you. While it's true that homeowners stand to gain the most from itemizing, there are still strategies that those who rent can employ to reduce their tax burden.
-
See What Your State Offers
-
Although most renters take the standard deduction over itemizing, there are state-by-state deductions available for those who rent. According to Intuit Accounting Professionals Senior Tax Analyst Mike D'Avolio, "California, Hawaii, Maryland, Massachusetts, Montana, Utah and Wisconsin have renter's credits; Indiana has a renter's deduction; other states offer assistance, such as rebates. New Jersey and Vermont offer rental rebates. Each state has its own rules for determining who qualifies for the tax break." According to Brad Lazarus of Omega Advisors LLC, "The amount of the credit can be substantial--in Minnesota, for example, the maximum credit is $1,490 and the average renter receives over $600." According to Lazarus the guidelines are generally, "Must be at least a part-time state resident during the year, income limits (typically below $50,000 for single filers and $75,000 for married filing joint) and not a dependent." However, these credits are not for everyone. D'Avolio cautions, "Typically, the tax breaks apply to individuals with low income or senior citizens".
Ask About Additional Deductions
-
Many people are unaware that some monthly expenses can be deducted. For example, the American Recovery and Reinvestment Act has provisions for those who take public transportation to and from work, according to Sandra Block, financial columnist for "USA Today." "The bill allows employees to set aside up to $230 a month in pretax dollars to cover the cost of a bus, train or van pool, up from $120. Employees were already allowed to set aside up to $230 a month for parking. If the employer subsidizes public transportation, employees can receive up to $230 a month without paying taxes on the benefit."
If you work from home, you may be able to claim the home office deduction. According to IRS.gov, "The home office deduction is available for homeowners and renters, and applies to all types of homes, from apartments to mobile homes."
You might qualify for a tax deduction if you purchased a new car this year, Block said. "Purchasers of new cars and trucks will be allowed to deduct sales or excise taxes. This is an above-the-line deduction, so you don't have to itemize to claim it," she said. But you won't know about these deductions and credits if you don't do your homework. The IRS website is a great source of information.
Be Careful
-
Although electronic filing is generally cheaper, to avoid costly tax errors it's best to ask a tax professional what deductions are available to you. They can tell you whether it's to your advantage to itemize your deductions or to just use the standard deduction.
-
