Familiarize yourself with what is and what is not deductible when it comes to the things you own. And, better yet, some purchases can win you tax credits, which are far more valuable than any deduction can be. A deduction lets you reduce the amount of income that gets taxed so, if you’re in the 25% tax bracket, a deduction saves you 25 cents on the dollar. A tax credit is a dollar for dollar reduction of your tax bill.
What's Deductible? -- A to Z
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Aircraft. You can deduct either the state and local income taxes you paid in 2010 or the state and local sales taxes -- whichever gives you the biggest tax break. If you live in a state with no income tax, it’s a no brainer: deduct your sales taxes. But even if you live in a state with an income tax, if you bought an airplane during the year, the sales tax bill might be big enough to trump the income tax write-off. The IRS publishes tables to estimate how much sales tax you paid during the year and you can add sales tax on the plane to the table amount. If the sales tax rate on the airplane is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate.
Appraisal fees for casualty and theft losses. Deduct appraisal fees paid to determine the amount of a casualty loss as a miscellaneous itemized deduction.
Automobile. As with aircraft, if you bought a car in 2010, you can add the sales tax amount paid on the vehicle to your state sales tax deduction – if you itemize and choose to deduct sales taxes rather than state income taxes. If the sales tax rate on the car or truck is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate.
Boats. As with airplanes and cars, if you bought a boat in 2010, you can add the sales tax paid to the IRS table amount in deciding whether to deduct income or sales taxes on your 2010 federal return. If the sales tax rate on the boat is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate.
Casualties and theft losses. You may be able to deduct uninsured losses due to theft or casualty -- a sudden, catastrophic event such as a hurricane, earthquake, fire or accident. First, for each 2010 loss event you have, you must reduce each loss by $100. The remaining amount is then deductible to the extent it exceeds 10% of your adjusted gross income. If your 2010 loss occurred in a presidentially declared disaster area, you can elect to deduct it on your 2009 or 2010 return, depending on which one saves you the most tax. (If you claim it by filing a 2009 amended tax return, you’ll get your tax savings via a refund check.)
Company cars. Employers are required to report as taxable income to you the value of personal use of company cars. Among the approved methods of setting the value for 2010 are $1.50 each way if the car is used to commute between home and work, for example, or, for cars that cost $15,300 or less, 50 cents per mile. For personal use of more expensive cars, your employer is required to report higher taxable income, based on the amount it would cost to lease the vehicle.
Computer. It's difficult to qualify to deduct the cost of a computer unless it is used in your business. However, if you use your computer to track investments and do your tax return, you may be able to depreciate part of the cost as a miscellaneous itemized expense. Such costs are deductible to the extent they exceed 2% of your adjusted gross income.
Depreciating vehicles used for business. Despite the expensing and bonus depreciation rules, there’s a limit on how much of the cost of a vehicle used in your business can be written off in the year of the purchase. If you bought a vehicle for your business in 2010, you can deduct up to $11,060 of the cost as depreciation.
Diesel-car credit. Several clean-diesel automobiles qualify for a tax credit similar to the one available for gasoline/electric hybrids. Purchasers of a new 2010 VW Jetta Sedan 2.0-liter TDI between July 1 and December 31, 2010, for example, can claim a credit of $650.
Donation of car to charity. Although Congress has cracked down on deducting the value of used cars given to charitable organizations, giving away a car can still cut your taxes. Your deduction is usually limited to the amount the vehicle is sold for by the charity.
Driving for charity. You can deduct 14 cents per mile for each mile you drove while performing services for a charity in 2010.
Driving to doctors. You can deduct 16.5 cents per mile for each mile you drove for medical-related travel in 2010 as part of your medical expenses. (For 2011 medical driving, the rate rises to 19 cents a mile.)
Expensing heavy SUVs and pickups. Although first-year depreciation deductions for business vehicles purchased in 2010 are generally limited to $11,060, the limit is higher for SUVs with loaded vehicle weights over 6,000 pounds. For such vehicles put into use prior to September 9, 2010, $25,000 of the cost can expensed, half of the remaining balance can be claimed as bonus depreciation, then 20% of what’s left can be taken as regular depreciation. On a $50,000 new heavy SUV, $40,000 can be written off in 2010, assuming 100% business use. For such vehicles purchased and put into use after September 8, the full cost can be written off in 2010, thanks to the 100% bonus depreciation rule. And for pickup trucks with loaded weights over 6,000 pounds purchased anytime during the year, the entire cost can be expensed if two requirements are met: Their truck beds must be at least six feet long and must be separate from the cab.
Home building materials. If you itemize deductions, you can write off either the state and local income taxes you paid in 2010 or the state and local sales taxes – whichever gives you the biggest tax break. If you live in a state with no income tax, it’s a no brainer: deduct your sales taxes. But even if you live in a state with an income tax, if you purchased materials to build a home or for a home improvement during the year, the sales tax bill on those purchases might be large enough to trump the income tax write-off. The IRS publishes tables to estimate how much sales tax you paid and you can add sales tax on the building materials to the table amount. If the sales tax rate on the building materials is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate.
Hybrid vehicle credit. 2010 was the last year in which Uncle Sam offered a tax credit to encourage folks to buy hybrid vehicles. A credit of as much as $2,200 is available to buyers of certain – but not all – hybrids. The most popular hybrids, including the Toyota Prius, for example, did not quality. But, if you bought a hybrid in 2010, be sure to see if you’re eligible for this tax break.
Job-related move. See Moving expense.
Luxury car rule. A crackdown limits annual depreciation deductions for cars and other vehicles used in business. See Depreciating vehicles for first-year limits and Expensing SUVs and pickups for exceptions.
Mobile home. As with vehicles, aircraft, boats and building materials, if you bought a mobile home in 2010, you are allowed to add the sales tax you paid on it to the amount in the IRS sales tax table – if you itemize and choose to deduct sales taxes rather than state income taxes. If the state sales rate on the purchase is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate.
Moving expenses. If a move is connected with taking a new job that is at least 50 miles farther from your old home than your old job was, you can deduct travel and lodging expenses for you and your family and the cost of moving your household goods. If you moved to take your first job, the 50-mile test applies to the distance between your old home and your new job. The deduction is allowed even if you do not itemize deductions. If you drive your own car, you can deduct 16.5cents a mile for 2010 moves. (For 2011, the standard mileage rate for moving is 19 cents a mile.)
Personal property tax. You can deduct state and local taxes that are based on the value of personal property you own, such as an annual county tax on the value of your car. Sometimes this fee is included in what you pay to renew your license plate.
Safety deposit box fees. You can deduct such fees if you use the box to store taxable income-producing stocks, bonds, or investment-related papers and documents. This write-off is a miscellaneous expense, deductible only to the extent all your qualifying miscellaneous expenses exceed 2% of your adjusted gross income. You cannot deduct the rent if you use the box only for jewelry, other personal items or tax-exempt securities.
Sales taxes. If you itemize deductions for 2010, you can choose to deduct either city and state income taxes you pay or state and local sales taxes. This is a no-brainer for those who live in a state that does not impose an income tax ... claim the sales tax deduction. You don't need to keep all your receipts, either. The IRS has a handy-dandy table with estimates based on your income, family size and where you live. Then you can add sales taxes paid on cars, boats, aircraft and other big ticket items. Purchase of such items could lead some taxpayers in income-tax states to pay more sales tax than income tax.
Sales tax paid on leased vehicle. If you leased a vehicle in 2010, you are allowed to add any sales tax you paid on the transaction to the amount in the IRS sales tax table -- if you choose to deduct sales taxes instead of income taxes on your federal return. If the state sales tax rate on the purchase is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate.
Sales tax paid on vehicle you bought. If you bought a vehicle in 2010, you are allowed to add the sales tax you paid on it to the amount in the IRS sales tax table -- if you choose to deduct sales taxes instead of income taxes on your federal return. If the state sales rate on the purchase is higher than the general sales tax rate, you can only deduct the amount of tax due at the general sales tax rate.
Standard mileage rate for business driving. You can deduct 50 cents per mile for each mile you drove on business in 2010, plus parking and tolls. If your employer did not reimburse you the full 50 cents a mile for using your vehicle for your job, claim the difference as an employee business expense. (For 2011 business driving, the rate is 51 cents a mile.)
Vacation home. Mortgage interest on a second home is deductible, just as it is for your principal residence. Property taxes can be deducted on any number of homes. If you rent the place for 14 or fewer days during the year, the rental income is tax-free to you. If you rent it for more than 14 days a year, you must report the income but also may claim deductions for rental expenses.
Vehicle registration fees. Any fee you pay to register your vehicle is deductible on Schedule A as a personal property tax if the fee is based on a percentage of the vehicle's value.
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