Wondering which tax breaks you might be able to take advantage of this year? It might help to first take stock of any major financial decisions or changes you made last year.
Home upgrades, a new electric vehicle purchase or paying down some student loan interest are just a few activities that could equal some serious savings this filing season.
1. Get rewarded for going green
If you decided 2023 was the year to tackle some home improvements, you could reap the reward of tax credits worth up to $3,200 or more on your 2024 tax return.
The Inflation Reduction Act, a tax bill passed in 2022, expanded the energy efficient home improvement tax credit through 2032. The law also eliminated the lifetime limit clause, meaning taxpayers can now take advantage of the credit annually, if eligible.
If you purchased energy-efficient windows, doors, insulation, air conditioners or even paid for a home energy audit in 2023, you may be able to snag a credit of up to $1,200 for those updates. On top of that, if you purchased heat pumps, water heaters or biomass stoves, it could get you up to $2,000, for a total of up to $3,200.
On the other hand, if you opted for a bigger overhaul by installing renewable energy sources such as solar panels, you might be able to claim 30% of your total costs through another credit called the residential clean energy credit.
The advantage of the residential clean energy credit, in particular, is that any remaining amount above the 30% cap can be carried over to future tax returns, says Craig Chilcote, a Duluth, Minnesota-based CPA and managing partner of Anderson Kuiti & Asuma PLLC.
One big caveat: You can’t claim the residential clean energy credit and the energy efficiency home improvement tax credit at the same time.
2. Save on taxes by switching to an electric vehicle
One hot topic last year was the push for electric-powered vehicles. They’re better for the environment than traditional gas and diesel-fueled cars, and purchasing one could mean some serious savings in the form of an EV tax credit worth $3,750 to $7,500.
For those who drove a new qualified EV off the lot in 2023, your dealer should have given you the paperwork needed to claim the credit on the tax return you’re filing by April, but don’t forget the final step: filling out Form 8936.
For those contemplating an EV purchase in 2024, the rules and qualifying vehicles have changed a bit as new battery requirements have come into play. More importantly, you can either take the credit on your 2024 taxes in 2025, or ask the dealer to lower the price of the car by the credit amount immediately.
The key to taking advantage of this evolving incentive? Ensure you stay on top of your options by keeping up with the latest EV tax credit changes.
3. Leverage your student loan interest
Millions of borrowers began student loan repayments in late 2023, as the three-year pause came to an end. If you’re one of those borrowers, there’s one upside to consider: the student loan interest deduction.
While this tax benefit isn’t new, this may be the first time since 2021 that many filers can take full advantage. The tax break allows qualified student loan borrowers who paid interest on their loans to lower their taxable income by up to $2,500.
Keep an eye out for Form 1098-E from your lender, says Moira Corcoran, a Chicago-based CPA. That record is an indication that you paid more than $600 in interest in 2023 and probably can take advantage of the credit.
If you’re a parent who has been paying your child’s student loan and the loan is in your name, you get to take the deduction instead of your kid, even if you’re not a student.
4. Don’t write off itemizing
The Tax Cuts and Jobs Act, a major piece of tax law enacted in 2017, almost doubled the standard deduction, making it the go-to choice for many tax filers. According to the latest data from the IRS, nearly 90% of filers took it in 2020.
You may want to think twice before defaulting to the standard deduction, though, says Chilcote. For some taxpayers — especially homeowners or retirees with high unreimbursed medical costs — it may be worth thinking about the alternative: itemizing.
Even if rummaging through receipts and paperwork seems low on your list of to-dos, it might be worth the pain of digging. After all, these additional deductions could end up totaling more in savings than the standard deduction.
The good news is that your tax preparer or tax software often can help run both scenarios to see which one has the biggest benefit.
5. Prepare for some potential child tax credit confusion
One final tip for this tax season is to keep an eye on the possibility of a child tax credit expansion. If the Tax Relief for American Families and Workers Act of 2024, currently awaiting a Senate vote, becomes law, the refundable version of the child tax credit would increase from $1,600 to $1,800 for the current tax year. The law also would allow filers to factor in the number of qualifying children they have when calculating their total refundable benefit.
While it’s unlikely these changes will affect most moderate- to high-income taxpayers, they could extend a significant benefit to lower-income families who are often unable to take full advantage of the credit due to low or no taxes owed.
For those who’ve already filed, the IRS will automatically update and take steps to help taxpayers entitled to an additional refund — no action is needed on the tax filer’s part, IRS Commissioner Danny Werfel said in a recent news conference.
But this could change as the bill comes closer to reality. For those who have yet to file, most major tax software providers have confirmed that their programs will have the latest information to guide taxpayers through the change.