Most people consider their debt to be a major financial burden for the majority of the year, but there might be a small light at the end of the tax year. As you file your taxes you could be one of the lucky ones to see some return or reduction for your debt repayment. Marketwatch recently published a fairly inclusive list of ways that you might be able to take advantage of your debt as you file your taxes. While most reflect deductions via interest paid on your debt, many can have significant impact on the taxes you owe or the amount of your return. Included in the roundup…
- home expenses
- business expenses
- student loan interest
- and investments
One small downer – these perks don’t apply to all debt. Credit card debt, for instance won’t offer the same payback. Here’s a more detailed breakdown of the areas to keep your eye on as you continue or finish filing your taxes:
Student Loan interest
Many students in repayment will benefit from the student loan interest deduction which allows a deduction of up to $2,500 for qualifying individuals. It’s a bit of relief for all those times you may have cursed the added interest expense on your payments throughout the year!
Tuition and Fees Deduction
For those still enrolled in school, you may also be able to deduct up to $4,000 for expenses directly related to your educational expenses. For example: books, housing, supplies/materials, any associated fees, etc. You will want to itemize these purchases and keep your receipts in order to claim the deduction.
Expenses associated with your business are often qualified for a deduction come tax time. There are stipulations, however – such as distinguishing between costs that are current rather than than capitalized costs. For an excellent and comprehensive list of deductible business expenses, visit here.
Improvements made on your home could also result in a substantial deduction. You can deduct interest on up to $100,000 of loan money used for home equity. Though the rules are fairly straightforward, there are some exceptions. And of course, in order to meet the requirements the money must be used for increasing the value of your home. To understand if you qualify you can visit the IRS website for more details.
Mortgage Interest Deduction
This is one of the most widely claimed tax deductions and for good reason. You can deduct the interest on up to $1,000,000 of mortgage debt assuming you meet the criteria for a qualifying homeowner. You can use an online calculator to estimate what kind of deduction you can expect.
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Charitable Items Deduction
Think of your unused items as a kind of “material” debt. By paying back through charitable donations, you can receive benefits that square away some of the original costs by way of tax deductions. Just make sure to keep your receipts and perform estimates of worth when necessary. Though the limit for these donations is set quite high, you want to make sure that large items (your car or even your property) will deduct the amount you anticipate before signing them away.
Bad Debt Deduction
If you lent money to a friend, family member, or business partner which they are unable to pay back, you could qualify for the bad debt deduction. To receive the deduction, you must prove that you took an economic hit and also that you will not be seeing a return on the money lent and never expect to. Note – this is merely a deduction, not a credit or a way to see any of the lost debt back in your pocket.
What about consumer debt?
While it would be fantastic to include credit card debt in the mix, it’s a very (very, very) rare case that you’ll see tax benefits from consumer debt. However, if you expect a large return this year, you might consider using a portion of the funds to pay off your highest interest debt. Tax returns seem like a nice chunk of change to go and treat yourself, but they’re also an excellent opportunity to treat your debt.
If you have any tips or tricks to help make the most of tax season, leave a comment in the section below!
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