Everyone in this world is troubled because of taxes, whether a country is developed or not, irrespective of its government policy, tax is everywhere and spreads more so like a plague. The tax is like a bone in the neck which neither lets a person to breathe properly nor eat. Taxes are high in volume as well as rates.

Although the Indian government claims to have lenient taxes as compared to other developing and developed countries, it is still more and needs quite a decrease. Taxes are to be paid on everything from incomes to expenditures because one’s expenditure is another’s income and vice versa.

Be it on sale or purchase of goods and commodities, shares, debentures, providing or tasking a service, earning income through house property, salary, earning through speculation and many more.

• How Does Tax Credit Work?
• What is Income Tax Credit?
• What Should You Know About VAT?
• How do You Make a Claim For Tax Credits?
• Who is Eligible For Tax Credits?
• Can I Claim Working Tax Credit as a Single Person?
• When Should I Apply For Tax Credits?
• Child Tax Credit
• Top 7 Requirements for the 2021 Child Tax Credit
• How do I Claim Tax Credit?
• Can I Still Claim Working Tax Credit?
• How Much Can You Earn And Still Get Tax Credits?
• What is The Income Limit For Child Tax Credit?
• How do I Pay Back Overpaid Tax Credits?
• Tax Credit Calculator
• Tax Credit Online
• Can Homeowners Claim Tax Credits?

How Does Tax Credit Work?

Tax payment rules change from tax to tax. In some taxes, point of taxation is the person who is earning and in some cases the burden is on the person because of whom the person is earning that is a service receiver. Everyone is in the tax gamut which is becoming far more complex and modern day by day. Taxes are huge but are systematic in nature.

Read Also: 10 Tax Breaks for Students to Lower Tuition Expenses

Where tax is concerned there are seven types of assesses on which taxes can be levied. They are individual, Hindu Undivided Family (HUF), Company, Association of persons (AOP) or Body of Individuals (BOI), Any judicial body like Nagar nigam, Partnership firm and others which do not fall in the above mentioned categories. The tax burden is divided and so are the types of taxes.

There are two styles of taxes predominant in India and the world as well, that is, direct and indirect taxes. These taxes differ because of the burden of tax and point of taxation. Direct taxes are levied directly on the assessee whereas indirect taxes are levied indirectly, that is on the person who transacted with the assessee.

For example the burden of payment of service tax lies with the service receiver because as per the service tax rules service provider needs to charge service tax which should be ultimately paid by the receiver. In almost every tax there is also an element of recess which amounts to three percent of the tax liability.

Whenever we pay tax we always think of saving it by either paying it or getting a credit or refund. There was a time in India when tax rates were as high as ninety five percent and other taxes when added to the amount, grossed up to more than hundred percent. We have come a long way but still need to go further down to keep blood pressures and tension from rising.

Tax credits can be availed legitimately whenever the final or net amount is paid. As we all know there are due dates for everything and non payment within the due dates attract penalties and interest on late payment of taxes. Tax credits can be claimed or availed in almost every tax but it has its own rules and regulations.

What is Income Tax Credit?

Let’s discuss about income tax first. In income tax credit can be claimed of many things. First and foremost is the advance tax paid and tax deducted at source that is TDS. TDS is a concept in which when a payment is made by the payer in certain condition it needs to cut a percent of tax and then pay it to the payee.

For example if I render professional services amounting to Rs. 30000 or more under section 194J of the Income Tax Act, 1961 the payer or the service receiver will have to cut TDS at the rate of ten percent and then pay me the remaining amount. Thus if I render services amounting to Rs. 100000, income tax or TDS will be deducted with the amount of Rs. 10000 and Rs. 90000 will be paid to me.

Whenever in the future at the end of financial year I’ll file my income tax return I will deduct Rs. 10000 from my gross tax liability and then pay tax. Similar is the case when advance tax is paid. The credits that can be availed are a few more. Income tax also allows such expenditures on which VAT, service tax or any other tax is paid on time.

Under section 43B of the same act, if the tax on certain expenditure is paid within the time limit which is before thirtieth September of the assessment year then the expenditures will be allowed else will be disallowed. This is also a sort of tax credit.

Another type of tax credit is setting off of losses. Income tax allows assessees to set off their business losses up to five years old. Well we don’t have to pay tax on losses but losses can very well be carried forward to five years and set off against any incomes generated thereon.

Income tax is very complex and has many exceptions and conditions which need to be fulfilled in order to get such benefits. In India there is a Direct Tax Code (DTC) proposed which will be far simpler and compact.

We can be 101% sure that this too will become income tax in five years of its applicability. Tax evasion is an offence but tax saving and tax planning is not. It is a right of a person to save tax and pay the least.

Now moving onto the deductions which also are part of tax credits, Income tax allows certain expenditures as deductions like life insurance premium, mediclaim premium, interest paid on education and housing loan, donation paid subject to certain conditions and many more. Income tax specifically points out to these deductions mentioned in the Section 80C to 80 U of the Income Tax Act, 1961.

An assessee spending money on treatment of illness or a disorder of himself or herself, spouse, dependent children, dependent parents and dependent brother or sister can avail a tax deduction up to the amount of Rs. 20000 in one financial year.

There are also various incomes that are exempt from tax for an assessee like agricultural income, income by way of earning dividend from a domestic company, earnings from unit linked insurance plans and other such cases. Income tax permits tax credit of other statutory liabilities like property tax, professional tax etc on payment basis.

If a statutory liability is actually paid to the concerned regulating authority, tax credit of such a liability can be availed. Income tax is generous in some cases and practical too. It extends certain benefits to the assessees and if we do bit overlook them, taxes can easily be saved and indirectly availed.

Income tax provides an assessee quite a few benefits too but we tend to forget and overlook them. Tax credits can also be availed in other taxes as well. In case of service tax, a service provider can avail service tax credit if he too has received service from another assessee or paid him or her service tax.

The service tax is applicable on people who provide services like Chartered Accountants, Doctors, Consultants, Architects etc. These people charge service tax and have the liability to collect it from their customer and deposit it with the service tax department.

Service tax credit can be availed for expenses on which service tax is paid and such expenses were used during the course of business for business purposes.

For example when we pay landline bill or mobile bill, service tax is charged on it which can be availed as a credit when we pay our liability. Service tax also permits credit of excise and custom duty paid to the department.

What Should You Know About VAT?

When we talk about VAT or Value Added Tax which is the newer and simpler version of Sales Tax we have quite a scope to avail tax credit. In a very simple case whenever we compute our VAT liability that is on sales we deduct the actual amount of VAT paid on purchase. Well this prevents cascading effect which is tax on tax and has a lesser burden on the assessee.

Also in case of purchase of capital goods, the VAT paid can be availed. Many people tend to avoid taking invoices or bills to evade tax which is wrong and should be avoided. One should always take a bill and pay the tax because that tax will be there for you to avail as ad credit.

Whenever we go to a hotel and pay luxury and service tax, income tax allows us to claim them. Same is the case with VAT, it allows credit of VAT paid on purchase of the goods.

Excise duty is a tax levied on people engaged in manufacturing of goods. A concern needs to pay and levy excise on sale and purchase of manufactured goods from and to manufacturing concerns. The department of excise and customs take care of service tax, excise duty and custom duty.

The Act allows credit of three taxes that is service tax paid, excise duty paid and customs duty paid. All or any of the three taxes paid by the entity can be availed as a credit while remitting tax to the concerned authorities.

Taxes are meant for the benefit of nation, for its overall development and for that taxes need not be high. The problem of tax becoming high arises only when either it is not paid properly or not utilized effectively. In India, there are at least forty percent of people who do not pay taxes because they are either illiterate or taxes do not extend to them.

If I take example of a person who has a tea stall, he earns almost Rs. 500 a day which calculates up to Rs. 15000 a month and Rs. 180000 for a year and still he does not have to pay a single penny of cash and that is because he either claims himself to be illiterate or below poverty line.

And the best reason he gives is remove me from the place, I will put it up somewhere else, India is very big. When people like him have incomes but do not pay taxes its burden comes finally on people who can pay. They are asked to carry the burden of the others who cannot pay.

In the United States of America too, it was being proposed to increase the tax by two percent only for the elite and concerns who pay tax. It was to be levied on big corporate houses but the idea was thwarted because it was indirectly leading to increase in prices of commodities.

Another reason for high tax rates is inefficient utilization of taxes. Tax is revenue of the government and if it is not adequately utilized it will lead to further increase of taxes. Chanakya, the extremely learned scholar had written that if taxes are high then your king is a thief and is corrupt.

If taxes collected by the Government go into their pockets instead of the Government treasury then, it is a waste of taxes and an indication of the taxes going to be high.

The present Indian Government is a cheat and a fraud. They have increased the taxes and because of their corrupt motives the Indian Revenue System is going to dogs. The country is on a peak of corruption where scams have become a normal thing. Inflation is gripping the country; rupee is falling against the world currencies, crimes have raised and all because of one thing corruption.

If corruption decreases or ends then only the tax system will improve and strengthen. The country and the tax regime is in bad hands now and is falling apart every second. The hunger for personal gain and being in power has gripped everyone and like a termite slowly and steadily killing the nation from its deep recesses. Dante a very famous poet has written that those who maintain neutrality during the times of crisis attain the worst places in hell.

How do You Make a Claim For Tax Credits?

Tax credits have been replaced by Universal Credit.

You can only make a claim for Child Tax Credit or Working Tax Credit if you already get tax credits. You’ll need to update your existing tax credit claim by reporting a change in your circumstances online or by phone.

If you cannot apply for tax credits, you can apply for Universal Credit instead. You might be able to apply for Pension Credit if you and your partner are State Pension age or over.

You can claim the Employee Tax Credit if you receive income that is taxable under the Pay As You Earn (PAYE) system. This includes:

• wages
• benefit in kind
• occupational pensions
• Department of Social Protection (DSP) income.

You will also be entitled to this tax credit if you are an Irish resident and are in receipt of:

• a social security pension received from another EU Member State
• wages from abroad where tax was deducted under a PAYE type system.

How to claim

Use myAccount to claim this credit on the PAYE Services card.

For 2019 and subsequent years:

• click on ‘Review your tax’ link in PAYE Services
• request Statement of Liability
• click on ‘Complete Income Tax Return’
• in the ‘Tax Credits and Reliefs’ page, select ‘Your Job’
• select ‘Employee Tax Credit’
• complete and submit the form.

For 2018 and prior years:

• click on ‘Review your tax’ link in PAYE Services
• select the Income Tax Return (Form 12) for the relevant tax year
• in the ‘Tax Credits and Reliefs’ page select ‘Your job’
• select ‘Employee Tax Credit’ and add it as a tax credit
• complete and submit the form.

Who is Eligible For Tax Credits?

You can only make a claim for Working Tax Credit if you already get Child Tax Credit.

If you cannot apply for Working Tax Credit, you can apply for Universal Credit instead.

You might be able to apply for Pension Credit if you and your partner are State Pension age or over.

Hours you work

You must work a certain number of hours a week to qualify.

Circumstance	Hours a week
Aged 25 to 59	At least 30 hours
Aged 60 or over	At least 16 hours
Disabled	At least 16 hours
Single with 1 or more children	At least 16 hours
Couple with 1 or more children	Usually, at least 24 hours between you (with 1 of you working at least 16 hours)

A child is someone who is under 16 (or under 20 if they’re in approved education or training).

Use the tax credits calculator to check if you work the right number of hours.

You can still apply for Working Tax Credit if you’re on leave.

Exceptions for couples with at least one child

You can claim if you work less than 24 hours a week between you and one of the following applies:

• you work at least 16 hours a week and you’re disabled or aged 60 or above
• you work at least 16 hours a week and your partner is incapacitated (getting certain benefits because of disability or ill health), is entitled to Carer’s Allowance, or is in hospital or prison

Can I Claim Working Tax Credit as a Single Person?

You can only get Working Tax Credit if you are getting tax credits (Working Tax Credit or Child Tax Credit) at present.

In addition:

You and/or your partner must work full time, though this means a different number of hours per week for different people:

• Unless you satisfy any of the special conditions below, you will need to be over 25 years old and will need to work at least 30 hours per week
• If you are single and are responsible for a child or qualifying young person, you will need to be over 16 years old and will need to work at least 16 hours per week.
• If you live with a partner who gets ESA, PIP, DLA or Attendance Allowance and you are responsible for a child or qualifying young person you will need to be over 16 years old and will need to work at least 16 hours per week
• If you live with a partner who gets Carer’s Allowance or who is in hospital or in prison, and you are responsible for a child or qualifying young person, you will need to be over 16 years old and will need to work at least 16 hours per week
• If you have a disability which means you can get a disability element, you will need to be over 16 years old and will need to work at least 16 hours per week
• If you are over 60 years old, you will have to work at least 16 hours per week.

When Should I Apply For Tax Credits?

Apply as soon as you know you’re eligible so you get all the money you’re entitled to.

You can claim tax credits at any time of year.

If you know your income will go down

Apply straight away if you know your income will drop to a level that means you’ll be eligible for tax credits.

For example, you could make a claim now if you found out your income is going to drop in 6 months’ time.

The income levels for Working Tax Credit and Child Tax Credit are different.

Child Tax Credit

A child tax credit (CTC) is a tax credit for parents with dependent children given by various countries. The credit is often linked to the number of dependent children a taxpayer has and sometimes the taxpayer’s income level.

For example, in the United States, only families making less than $400,000 per year may claim the full CTC. Similarly, in the United Kingdom, the tax credit is only available for families making less than £42,000 per year.

The Child Tax Credit can significantly reduce your tax bill if you meet all seven requirements: 1. age, 2. relationship, 3. support, 4. dependent status, 5. citizenship, 6. length of residency and 7. family income. You and/or your child must pass all seven to claim this tax credit. Use a child tax credit calculator to determine your eligibility for tax year 2020 or tax year 2021.

To claim the Child Tax Credit, you must determine if your child is eligible. There are seven qualifying tests to consider: age, relationship, support, dependent status, citizenship, length of residency and family income. You and/or your child must pass all seven to claim this tax credit.

Top 7 Requirements for the 2021 Child Tax Credit:

1) Age test – To qualify, a child must have been under age 18 at the end of the year. Increased credit amounts are available for children under age 6 if certain family income tests are met.

2) Relationship test – The child must be your own child, a stepchild, or a foster child placed with you by a court or authorized agency. An adopted child is always treated as your own child. (“An adopted child” includes a child lawfully placed with you for legal adoption, even if that adoption is not final by the end of the tax year.)

You can also claim your brother or sister, stepbrother, stepsister. And you can claim descendants of any of these qualifying people—such as your nieces, nephews and grandchildren—if they meet all the other tests.

3) Support test – To qualify, the child cannot have provided more than half of his or her own financial support during the tax year.

4) Dependent test – You must claim the child as a dependent on your tax return. Bear in mind that in order for you to claim a child as a dependent, he or she must:

• be your child (or adoptive or foster child), sibling, niece, nephew or grandchild;
• be under age 19, or under age 24 and a full-time student for at least five months of the year; or be permanently disabled, regardless of age;
• have lived with you for more than half the year; and
• have provided no more than half his or her own support for the year.

5) Citizenship test – The child must be a U.S. citizen, a U.S. national or a U.S. resident alien. (For tax purposes, the term “U.S. national” refers to individuals who were born in American Samoa or in the Commonwealth of the Northern Mariana Islands.)

6) Residence test – The child must have lived with you for more than half of the tax year for which you claim the credit. There are important exceptions, however:

• A child who was born (or died) during the tax year is considered to have lived with you for the entire year.
• Temporary absences by you or the child for special circumstances, such as school, vacation, business, medical care, military services or detention in a juvenile facility, are counted as time the child lived with you.
• There are also some exceptions to the residency test for children of divorced or separated parents. For details, see the instructions for Form 1040.

7) Family income test

Income Limitation on the 2021 Child Tax Credit

The 2021 Child Tax Credit is reduced if your 2021 modified adjusted gross income (MAGI) is above certain amounts which are determined by your tax-filing status.

• Qualifying families with incomes less than $75,000 for single, $112,500 for head of household, or $150,000 for joint returns are eligible for the temporarily increased credit of $3,600 for children under 6 and $3,000 for children under 18. Above these income amounts, the credit is reduced by $50 for each $1,000 over these limits.
• For families with MAGI greater than the amounts eligible for the increased credit, the phaseout of the credit begins with $200,000 in income ($400,000 for married filing jointly) and the credit amount is $2,000 for all children under 18 at the end of the tax year.
• Your greatest available credit is based on the above method that provides you with the largest benefit.

How do I Claim Tax Credit?

To claim the Child Tax Credit for the 2020 and earlier tax years, you must determine if your child is eligible. All of the seven qualifying tests listed above for the 2021 credit are the same except for:

Age test – For the 2020 tax credit, a child must have been under age 17 (i.e., 16 years old or younger) at the end of the tax year for which you claim the credit.

Family income test – For 2020 and earlier years, the Child Tax Credit is reduced if your modified adjusted gross income (MAGI) is above certain amounts, which are determined by your tax-filing status:

• For tax years from 2018 through 2020, the phaseout of the credit begins with $200,000 in income ($400,000 for married filing jointly).
• In 2017, the phase out threshold is $55,000 for married couples filing separately; $75,000 for single, head of household, and qualifying widow or widower filers; and $110,000 for married couples filing jointly. For each $1,000 of income above the threshold, your available child tax credit is reduced by $50.

Can I Still Claim Working Tax Credit?

If you already get Child Tax Credits, you can still add Working Tax Credits to your claim. If you made a claim for Working Tax Credits in the last tax year, you might be able to make a new claim. You should talk to an adviser to find out if you can. 

If you’ve reached your State Pension age, you can’t make a new claim for working tax credits. You should check if you can get Pension Credit. You can check your State Pension age on GOV.UK.

To get Working Tax Credits you must be on a low income and work at least 16 hours a week.

The amount you could get in tax credits depends on your income as well other factors such as whether you have children. To get an estimate, use the the tax credits calculator on GOV.UK.

If you’re self-employed, you need to work out your income from your taxable profits.

You can still apply if your income is slightly too high to be eligible for tax credits. If your income goes down later in the year, your tax credit claim can be backdated to when you made your claim. This is because tax credit amounts are worked out across a full year.

This is called a ‘protective claim’ – the application process is the same.

How Much Can You Earn And Still Get Tax Credits?

For Working Tax Credit there is no set limit for income because it depends on your circumstances (and those of your partner).

For example, the government says that it could be £18,000 for a couple without children or £13,00 for a single person without children.

It can be higher if you have children or if you are disabled.

This is also true for Child Tax Credit – but broadly speaking if you have one child and your total household income goes over £25,000 then you’ll get no top up to your income.

If you have two children born before April 6, 2007 the maximum you can earn and get credits is about £35,000.

Essentially, the more you earn the less you’ll get.

What is The Income Limit For Child Tax Credit?

Single filers

Single taxpayer parents with an adjusted gross income (AGI) under $75,000 will qualify for the full child tax credit amount of $3,600 for children under six and $3,000 for children under 17. Payments will be phased out for those earning above $75,000, up to a threshold of $240,000. Single filers earning more than $240,000 will not be eligible to receive the child tax credit.

Head of households

Head of households with an adjusted gross income of less than $112,500 will be eligible for the full child tax credit amount of $3,600 for children under six and $3,000 for children under 17. At $112,500, payments begin phasing out, up to a limit of $240,000. Heads of households earning more than $240,000 will not be eligible to receive the child tax credit.

Married/Joint filers

Joint filers/married couples with a combined adjusted gross income of less than $150,000 will be entitled to claim the full child tax credit amount of $3,600 for children under six and $3,000 for children under 17.

Payments will be phased out for couples earning above a combined $150,000, up to a threshold of $440,000. Couples with a combined income above $440,000 will not be eligible to receive the child tax credit.

How do I Pay Back Overpaid Tax Credits?

The Tax Credit Office will write to tell you what you owe and how to repay.

How you repay depends on whether you still get tax credits, Universal Credit or neither.

Call the helpline if you:

• think the Tax Credit Office made a mistake
• already have a repayment plan but you get another letter – you may need to set up a new plan

If you still get tax credits

HMRC will automatically reduce your future tax credit payments until you’ve paid back the money you owe.

The amount they’ll reduce your tax credit payments by usually depends on how much you currently get and your household income.

Household income	Reduction
£20,000 or less and you get maximum tax credits	10%
£20,000 or less and you get less than the maximum tax credits	25%
More than £20,000	50%

If you’ve moved to Universal Credit

Your future payments will be reduced until you’ve paid back the money you owe.

If you do not get tax credits or Universal Credit

HMRC will send you a ‘notice to pay’ which you should pay within 30 days.

It’s your responsibility to make sure payments reach HMRC on time. Check your bank’s transaction limits and processing times.

If you do not pay in time, the money you owe will be recovered from you in another way.

Call the helpline if you want to make extra payments to clear the debt more quickly.

There are several ways to repay.

Direct Debit

You can call the helpline to set up a Direct Debit.

You’ll need your tax credit reference number – you’ll find it on your notice to pay.

It takes up to 5 working days to set up. Payments appear on your statements as ‘HMRC NDDS’.

Online and telephone banking (Faster Payments)

Pay to HMRC’s account and use your tax credit reference number (found on your notice to pay) as the payment reference.

Sort code	Account number	Account name
08 32 10	12001039	HMRC Cumbernauld

Payments made by Faster Payments will usually reach HMRC on the same or next day, including weekends and bank holidays.

If you’re paying from an overseas account, you can pay HMRC in sterling or another currency.

Account number (IBAN)	Bank identifier code (BIC)	Account name
GB62BARC20114770297690	BARCGB22	HMRC Cumbernauld

HMRC’s bank address is:

Barclays Bank PLC
1 Churchill Place
London
United Kingdom
E14 5HP

At your bank or building society

Pay at your branch by cash or cheque.

Make your cheque payable to ‘HM Revenue and Customs only’. Write your tax credit reference number on the back of the cheque. You’ll find this on your notice to pay.

HMRC will accept your payment on the date you make it and not the date it reaches HMRC’s account.

By cheque through the post

You can send a cheque by post to HM Revenue and Customs (HMRC). Allow 3 working days for your payment to reach HMRC.

HMRC
Direct
BX5 5BD

You do not need to include a street name, city name or PO box with this address.

Make your cheque payable to ‘HM Revenue and Customs only’. Write your tax credit reference number on the back of the cheque. You’ll find this on your notice to pay.

Do not fold your cheque.

Your payment may be delayed if you do not fill in your cheque properly.

Include a note with:

• your name, address and phone number
• your tax credit reference number
• how much you’re paying
• the period you’re paying for

You can ask for a receipt if you want one.

Tax Credit Calculator

You can only make a new claim for tax credits if you already get Child Tax Credit or Working Tax Credit.

If your circumstances change and you already receive tax credits, use the calculator to see how much you could now get in tax credits. The estimated figure is for a 4-week period.

Before you start

You’ll need details of:

• your income
• your partner’s income
• your working hours
• any benefits you’re claiming, or have just stopped claiming
• the average weekly amount you spend on childcare
• your immigration status, if you are ‘subject to immigration control’

Tax Credit Online

Use this service to:

• report actual income from self-employment if you estimated it when you renewed
• tell HM Revenue and Customs (HMRC) about changes to your circumstances, for example you get married or your working hours change
• find out how much and when you’ll be paid

Before you start

If you’re signing in to the service for the first time, you’ll need:

• a Government Gateway user ID and password – if you do not have a user ID, you can create one when you use the service
• a permanent National Insurance number

You also need to prove your identity. You can use any 2 of the following:

• your tax credit claim details
• your P60
• one of your 3 most recent payslips
• your UK passport details
• information held on your credit file (such as loans, credit cards or mortgages)
• details from your Self Assessment tax return (in the last 3 years)

Signing in will also activate your personal tax account – you can use this to check and manage your HMRC records.

Renewing your tax credits

You can no longer renew your tax credits online for the 2020 to 2021 tax year.

Contact HMRC by phone or post if:

• you’ve missed the deadline for renewing your tax credits
• you’ve renewed your tax credits and there’s a mistake on your award notice

You’ll need:

• your renewal pack (if you have one)
• your National Insurance number
• details about any changes to your circumstances
• you and your partner’s total income for the last tax year (6 April 2020 to 5 April 2021)

Can Homeowners Claim Tax Credits?

The main tax benefit of owning a house is that the imputed rental income homeowners receive is not taxed. Although that income is not taxed, homeowners still may deduct mortgage interest and property tax payments, as well as certain other expenses from their federal taxable income if they itemize their deductions. Additionally, homeowners may exclude, up to a limit, the capital gain they realize from the sale of a home.

The IRS has extensive rules about the tax breaks available for homeowners. We have pulled out the tax deductions that are most important for homeowners to consider.

With that, let’s dive into the tax breaks you should consider as a homeowner.

1. Mortgage Interest

If you have a mortgage on your home, you can take advantage of the mortgage interest deduction. You can lower your taxable income through this itemized deduction of mortgage interest.

In the past, homeowners could deduct up to $1 million in mortgage interest. However, the Tax Cuts and Jobs Act has reduced this limit to $750,000 as a single filer or married couple filing jointly. If you are married but filing separately, the deduction limit is $375,000 for each party.

2. Home Equity Loan Interest

A home equity loan is essentially a second mortgage on your house. With a home equity loan, you can access the equity you’ve built in your home as collateral to borrow funds that you need for other purposes.

Like regular mortgage interest, you can deduct the interest you’ve paid on home equity loans and home equity lines of credit. However, you can only make this deduction if you used the borrowed funds to pay for a home improvement. Prior to the Tax Cuts and Jobs Act of 2017, you could deduct the interest on these loans regardless of how you spent the funds.

3. Discount Points

When you take out a mortgage, you may have the option to purchase discount points to lower your interest rate on the loan. If you have this option, one discount point will equate to 1% of the mortgage amount.

If the points are purchased to reduce the mortgage’s interest rate, you can deduct the cost of the discount points. However, ‘loan origination points’ will not be tax deductible because these are fees that don’t affect the interest rate of your loan.

4. Property Taxes

As a homeowner, you’ll face property taxes at a state and local level. You can deduct up to $10,000 of property taxes as a married couple filing jointly – or $5,000 if you are single or married filing separate.

Depending on your location, the property tax deduction can be very valuable.

5. Necessary Home Improvements

Necessary home improvements can qualify as tax deductions. Of course, the definition of ‘necessary’ is somewhat limited. If you decide to upgrade your fully functioning kitchen, those improvement costs may not qualify.

But, if you have to make permanent improvements to make your home more accessible for medical reasons, that should qualify. A few examples might include installing medical equipment, installing railings or widening doorways for an accessible home.

6. Home Office Expenses

If you operate a home office in your residence, you can deduct some of the expenses of maintaining that space. The IRS requires that you use your home office for regular and exclusive business use in order to qualify for a deduction. If you only use the office space when it is convenient, that will not qualify.

Read Also: The 10 Best and Most Creative Ways to pay off Student Loans Faster

In terms of the deductions, the size of the deduction is based on the percentage of your home dedicated to the place of business.

7. Mortgage Insurance

Private mortgage insurance, or PMI, is another expense that many homeowners have to factor into their budget. PMI is there to protect your lender if you are unable to continue making payments on your mortgage.

You can deduct your mortgage insurance payments on your itemized tax return.

8. Capital Gains

Capital gains tax breaks come into play when you sell your home for a profit. The capital gain is the difference between the value of the home when you bought it and when you sold it. For example, let’s say you bought your home for $100,000. A few years later, you sell your home for $150,000. With that deal, you would walk away with a capital gain of $50,000.

If you were using the home as your primary residence for 2 of the last 5 years, you could keep some profits without any tax obligation. As a married couple filing jointly, you can keep up to $500,000 in capital gains. As a single filer or married couple filing separately, each party can keep up to $250,000 of capital gains without a tax obligation.

The key is that you lived in the house for 2 of the last 5 years. With a big tax break on the table, it’s important to take this deduction seriously.