01/09/2014
7 Obscure Tax Breaks You Can Claim
Many tax breaks are well known, such as the deduction for charitable contributions and the IRS mileage allowance for business use of your vehicle. Some breaks, however, are limited to certain taxpayers in special situations. If you fall into these categories, you too may be able to claim special tax deductions, credits, or exclusions.
1 — Pet food
Usually, the cost of owning a pet is a nondeductible personal expense. Thus, the cost of food, veterinary bills, and boarding cannot be written off. However, the cost becomes deductible under certain conditions:
Companion animals. The cost of a seeing-eye dog can be deducted as a medical expense.
Guard animals. The upkeep for guard dogs and feral cats used to watch over business property can be a deductible business expense.
Household pets. The cost of relocating them to your new home is treated as a deductible moving expense (just like the cost of moving furniture) as long as the move itself is tax deductible.
2 — Hosting exchange students
You can’t deduct the cost of food and shelter for your own children. However, if you take in a foreign exchange student through a qualified program, you can deduct up to $50 per month as a charitable contribution deduction. If the student is in your home for at least 15 days in the month, it counts as a full month for deduction purposes.
3 — Gambling activities
If you lose, you can win taxwise by deducting your gambling losses. You need to save proof of your gambling activities, such as stubs from racetrack bets. Gambling losses are deductible as miscellaneous itemized deductions, but they are not subject to the 2% of adjusted gross income limit. The only limit: They cannot be more than total gambling winnings for the year.
4 — Removing lead paint
Painting your home is a nondeductible personal expense. However, the IRS specifically says that the cost of removing lead paint is a deductible medical expense if done to prevent a child who has or had lead poisoning from eating the peeling and chipping lead paint. The cost of repainting is still nondeductible.
5 — Going back to school
Tax breaks for higher education aren’t just for high school seniors going on to college. Whatever your age, if you continue with college, graduate school, or certain training programs, you may qualify for the lifetime learning credit. The maximum credit is $2,000. However, income limits apply that curtail or bar the credit.
6 — Saving for retirement
Adding money to your 401(k) plan or IRA isn’t the only tax break you can claim for saving for your retirement. You can also take a tax credit, called the retirement savers credit, if your income is below set limits. The credit is capped at 50% of your retirement contributions, for a top credit of $1,000.
7 — Mortgage credit certificates
If you obtain government help to buy a home, you may also qualify for a tax break. To help certain low-income individuals buy a home, state and local agencies can issue mortgage credit certificates (MCCs). They entitle the homeowner to claim a tax credit for the mortgage interest they pay, up to a maximum credit of $2,000.
The credit can be claimed year in and year out. However, if the homeowner sells the residence within 9 years of its acquisition, some of the credit must be recaptured (included in income) in the year of the sale.
Conclusion
Don’t assume that your expenditures, no matter how far out, won’t help you at tax time. The lesson is to save receipts (you never know)!
