Considering which tax breaks you qualify for this year? It could prove beneficial to assess any significant financial decisions or adjustments made during the previous year.
Undertaking home renovations, acquiring a new electric vehicle, or reducing student loan interest payments are among the various actions that may lead to substantial savings during this year’s tax filing period.
Your Guide to Key Tax Breaks in 2024
Green Actions, Great Rewards
The 2022 Inflation Reduction Act extended the energy-efficient home improvement tax credit until 2032.
Notably, the law eliminated the lifetime limit, allowing eligible taxpayers to claim the credit annually.
In 2023, you could receive a $1,200 credit for energy-efficient upgrades like windows, doors, insulation, air conditioners, or home energy audits.
Heat pumps, water heaters, and biomass stoves may qualify for an additional $2,000 credit, bringing the total credit to $3,200.
If you installed renewable energy sources like solar panels during a larger renovation, you may be eligible for the residential clean energy credit, which covers 30% of your costs.
Optimize Your Student Loan Interest for Tax Benefits
In late 2023, numerous borrowers resumed student loan repayments following the conclusion of a three-year hiatus.
For those in this category, there is a silver lining to consider: the student loan interest deduction.
Although this tax advantage is not novel, it may be the initial opportunity for many filers since 2021 to fully utilize it.
This deduction permits eligible student loan borrowers who have paid interest on their loans to reduce their taxable income by a maximum of $2,500.
Cut Taxes with Electric Vehicle Transition
Electric-powered vehicles (EVs) garnered significant attention last year due to their environmental benefits and potential for substantial savings through a tax credit ranging from $3,750 to $7,500.
For those who purchased a qualifying EV in 2023, dealerships should have provided necessary documentation for claiming the credit during tax filing by the April deadline. However, it’s imperative not to overlook the final step: completing Form 8936.
In 2024, individuals contemplating an EV purchase should be aware of adjusted regulations and eligible vehicles, particularly regarding new battery criteria.
Additionally, they can choose to claim the credit on their 2024 tax return in 2025 or request immediate reduction of the car’s price by the equivalent credit amount from the dealership.
Reconsider Itemizing for Tax Savings
The Tax Cuts and Jobs Act, a significant legislation passed in 2017, substantially increased the standard deduction, rendering it the preferred option for numerous tax filers.
As per recent IRS data, nearly 90% of filers opted for the standard deduction in 2020.
However, it is advisable to reconsider automatically selecting the standard deduction.
For certain taxpayers—particularly homeowners or retirees burdened by significant unreimbursed medical expenses—it may be advantageous to contemplate an alternative approach: itemizing deductions.
Anticipate Child Tax Credit Complexity
In light of the ongoing tax season, it’s advisable to stay informed about the potential expansion of the child tax credit.
Pending the enactment of the Tax Relief for American Families and Workers Act of 2024, currently awaiting Senate approval, the refundable portion of the child tax credit could increase from $1,600 to $1,800 for the present tax year.
Moreover, the proposed legislation would allow taxpayers to consider the number of qualifying children they have when calculating their total refundable benefit.
Although these changes are unlikely to affect most taxpayers with moderate to high incomes, they could provide significant assistance to lower-income families, who often face challenges in fully utilizing the credit due to minimal or nonexistent tax liabilities.
For individuals who have already filed their tax returns, IRS Commissioner Danny Werfel recently announced that the IRS will automatically update and implement measures to aid eligible taxpayers in securing an additional refund. No action is necessary on the taxpayer’s part.