Are there any good renter tax breaks out there?
During tax time, essential documents arrive via snail mail and your inbox in staggered succession. While renters don’t get the big homeowner tax breaks like mortgage interest and depreciation, they still have access to plenty of other credits and deductible expenses.
And, when you take the time to find them all, you can smile a little brighter. With enough tweaks, you can go from owing to evening out — or even getting a substantial refund!
When you work with a tax professional like Dickson & Associates, you can get the absolute top dollar on your income tax return. You can also DIY your taxes with some helpful software like TurboTax. The path you choose is up to you. However, if it’s your first time filing taxes or you have any questions, we highly recommend using professional services.
First Thing’s First: Defining Deductions vs. Credits
People who have less taxable income owe less and get more benefits. Deductions and credits reduce your taxable income and increase your chance of getting a refund.
- A tax deduction is the amount one can deduct from their total taxable income. The higher the deduction, the less income the government can tax.
The IRS lets you use standard or itemized deductions. Itemizing can add up in your favor if your financial activity involves a lot of deductible expenses. For 2023, the standard deductions are:
- Single or Married Filing Separately: $12,950
- Married Filing Jointly or Qualifying Widow(er): $25,900
- Head of Household: $19,400
If the itemized deduction adds to more than the standard deduction, you should use it to reduce your maximum taxable income.
- Tax credits are dollar-for-dollar reductions on the total tax owed (in most cases), and they can be refundable or nonrefundable. Refundable credits can become part of a positive tax refund, while nonrefundable credits can only pay down sums that you owe.
Renter Tax Deductions
1. Real Estate Property Tax Deduction
Say what? Real estate taxes? How can that be if you live in a rental property? Sometimes you may be responsible for paying property taxes with rent in the lease agreement. If you pay these real estate taxes as a renter, you can deduct that portion of your rent from your tax bill.
2. Property Losses or Damage
If you have experienced loss related to a federal natural disaster, you can report these losses. Talk to your CPA if you have any questions about your losses and whether they qualify.
3. Personal Property Tax Deduction
If you pay taxes on your vehicle or other personal property, you can deduct these taxes. You are eligible for up to $5,000 per person. This includes state and local income taxes or sales taxes.
4. Home Office Deduction
While most renters may skip this deduction because they think it’s only for homeowners, you can actually deduct home office use in a rental home. If you have an office in the rental that is exclusively used for your business, you can deduct a percentage of your monthly rent from your taxes.
5. Self-Employed Deductions
If you are an LLC, Sole Proprietor, or any other type of self-employed individual who gets a 1099, you can potentially write off these business expenses and more:
- Cost to hire independent contractors
- General operating expenses
- Travel expenses
- Applicable insurance premiums
- Business travel. Confirm the standard mileage rate with your tax pro.
Work with a tax pro or use precise tax reporting software to ensure you get your small business deductions!
6. Charitable Giving Deduction
Being generous pays off. You can deduct up to 60% of your adjusted gross income through charitable giving.
7. Student Loan Interest Deduction
Borrowers of student loans can deduct up to $2,500 from their taxable income if they pay student loan interest.
Renter Tax Credits
1. Earned Income Credit
If you qualify for this one, it’s one of the best tax breaks you can get as a renter. It can take off a few thousand from what you owe or add to your refund. In 2023, the earned income credit ranges between $600 to $7,430. Family size, income, and marital status influences this figure. To qualify for this credit, you need to meet these criteria:
- Be a U.S. citizen or resident alien for all of the tax year.
- Work and have a total household income that is under $63,398.
- Not have any investment income above $11,000.
- Must have a valid Social Security number before the tax return due date.
- Must not file a form 2555 for foreign earned income.
This credit is great because it benefits many people, including the childfree. If you’re over 25 and don’t have children, you can still get some of this tax benefit!
2. Child Tax Credit
This year, families can get a maximum of $2,000 credit per child. However, only up to $1,400 is refundable. To get the full tax credit, married couples must have a combined income under $150,000. Single-parent heads of households who make $112,500 also get the maximum credit. Individuals who aren’t heads of households with an income under $75,000 qualify for the maximum credit.
3. Child And Dependent Care Tax Credit
If you pay for daycare or preschool so that you can work or look for work, or if you pay for care for a loved one who can’t care for themselves, you can claim these costs on your tax return. The credit allows you to claim up to $3,000 of care expenses for one qualifying individual or $6,000 for 2+ qualifying individuals. Depending on your income, you can get up to 35% of these maximum amounts as a credit.
The more you earn, the lower your dependent care credit will be. It’s not a great tax break, but it does help in some way. For example, you can spend $9000 in care expenses for one person, but you can only claim $3,000 of that figure, then your tax software will determine how much of that figure will become your credit.
4. Renter’s Tax Credit
Take advantage of this credit! Often renters just assume they can’t claim any of their rent on taxes, but quite a few states offer a helpful tax credit. Every state has different laws and regulations regarding this credit, so you should check with your local government and tax software to see what you can get.
For example, in Vermont, low-income renters can get refunds if the total rent paid exceeds a percentage of their household income. Even a little bit helps your tax bill, so comb through your state return before filing.
5. American Opportunity Credit
Renter taxpayers can claim the first $2,000 spent on school-related expenses like tuition, books, tech, and fees. After that, you can claim 25% off the next $2,000 paid for a maximum credit of $2,500. This doesn’t include living expenses. Parents of students or adult students can apply for this credit.
6. Lifetime Learning Credit
If you don’t qualify for the American Opportunity Credit, you can claim 20% of the first $10,000 paid toward school tuition, supplies, and fees through the Lifetime Learning Credit. This results in a maximum credit of $2,000. This doesn’t include living expenses. Parents of students or adult students can apply for this credit. Taxpayers who go to school must choose either the American Opportunity Credit or Lifetime Earning Credit because they can’t have both.
Bonus Credits And Deductions
Various life situations can give you even more savings. If your money has gone to significant expenses like hospital bills and childcare, then you should tell your tax pro about them. You can get some relief on taxes by doing a little digging into this year’s financial activities.
- IRA contributions
- 401(k) contributions
- Health savings account contributions deduction
- Educator expenses deduction
- Medical expenses deduction
- Gambling loss
- Adoption credit
- Various other credits and deductions offered by your state
Please note that all these deductions and credits are some of the biggest perks and are not meant to be a comprehensive list. Your tax pro may find even more ways to help you get the best tax return possible by working personally with a CPA who can help you take advantage of your unique financial profile and activities.
Are you looking for more renter tax breaks? Explore becoming a homeowner!
Are you happy living in a residential rental property and just want a few nuggets of wisdom for tax time, or do you crave more tax breaks as a homeowner? If you want to learn more about becoming a real estate investor, homeowner, or any other real estate topic, contact us at Marketplace Homes today.
Alicia Persson is the official in-house content writer for Marketplace Homes. She has several years of experience working in real estate teams that specialized in investments and property management. Before she joined MH, she was a freelance writer for 7 years, providing real estate and home living content for boutique digital marketing agencies.
She is a proud University of Virginia Masters graduate and enjoyed her undergraduate years at the University of Mary Washington. When she is not writing, she is playing keyboard in a local 90’s band in central Virginia or spending time with her amazing family.