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I am new here so please point me in the right direction.
We have paid off our home and I am looking for
some ideas on tax deductions. Our children are grown
and we do not have a business.
Thank you for your help.
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I am new here so please point me in the right direction. We have paid off our home and I am looking for some ideas on tax deductions. Our children are grown and we do not have a business.

Short answer: Why?

Long answer: Since you're new here you've never had the thrill of reading my harping about what I call taxphobia. I'm not saying this applies to you, but there are plenty of people who get so fixated on reducing taxes that they'll spend $100 to save $20 in taxes. This is not wise planning, and such people are also very easy to scam.

My personal opinion is that taxes should be used to finance necessary government, but Congress, in its infinite wisdom [irony alert], has chosen to use tax law not only to get money but to engineer behavior. The biggies that Congress has chosen to give tax breaks to are home buyers, parents, the charitable, and those saving for retirement.

You've paid off your home. Rather than thinking about losing the mortgage interest deduction, focus on the fact that you no longer make mortgage payments. Remember the time that those payments really pinched your budget, lift a glass, and celebrate the good new days.

You've raised your children. Lift another glass and celebrate the fact that you've raised productive competent adults. It probably never ocurred to you, but there are plenty of parents who can still claim their adult children as dependents. Would you like to join them?

While you're celebrating all your good fortune, remember those who are less fortunate. There's no end of need in the world, and you can get nice tax deductions for charitable contributions given in thanks that you don't need the benefit of them.

Which brings us to retirement planning. I have no idea what your situation is, but my parents couldn't afford to think of their future until they finished thinking about mine. If you don't feel financially secure for your future, that's where you need to concentrate. There's a section on retirement on the Fool homepage that I highly recommend.

My overall suggestion is that you adjust your thinking from trying to reduce your taxes toward celebrating your accomplishments and planning for the future. The taxes will take care of themselves.

Phil
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If this isn't post of the day then they should quit giving the award.

I only wish that I could write as well as you.

Sincerely

buzman
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pmarti:

<<<<I am new here so please point me in the right direction. We have paid off our home and I am looking for some ideas on tax deductions. Our children are grown and we do not have a business.>>>>

"Short answer: Why?

Long answer: Since you're new here you've never had the thrill of reading my harping about what I call taxphobia. I'm not saying this applies to you, but there are plenty of people who get so fixated on reducing taxes that they'll spend $100 to save $20 in taxes. This is not wise planning, and such people are also very easy to scam."


Excellent post, Phil.

You forgot, however, to illustrate this point by offering to borrow whatever amount the OP would like to lend on non-recourse, unsecured basis so that your failure to repay would generate a bad-debt deduction. (;>)

Regards, JAFO



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You forgot, however, to illustrate this point by offering to borrow whatever amount the OP would like to lend on non-recourse, unsecured basis so that your failure to repay would generate a bad-debt deduction.

I plead insufficient coffee. Otherwise, with proper credit, I would have mentioned that best example that I've ever seen.

Phil
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I hear you. It's only natural to feel a sense of loss when you're an empty nester and all those nice deductions go away. Suggestions:

1. Move to a low tax state. State income and sales tax rates vary widely, and the money you save here can all be invested.

2. Spend less. If you spend less and invest more now, you won't have to earn as much, or pay as much taxes later. Further, much of your investment gains will grow tax deferred and be taxed at more favorable rates.

3. Get divorced. If both of your are working, you'll likely pay less taxes as two single people.

4. Sell a losing investment (and immediately buy a similar one to maintain your asset allocation). You'll get a capital loss you can deduct against your other cap losses, or your regular income up to $3,000. You can carry the losses forward, too. This is easy money.

5. Max out your IRAs, obviously.

6. Donate to charity.

7. Start a side business.

Nick

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Thank you for recommending this post to our Best of feature.

If this isn't post of the day then they should quit giving the award.

Amen
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3. Get divorced. If both of your are working, you'll likely pay less taxes as two single people.

You would seriously suggest that someone get a divorce so they pay less taxes? Wouldn't that be taking the whole tax-avoidance thing just a bit too far?

Erik
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3. Get divorced

Isn't the new tax law closing the gap on this?

6. Donate to charity

If you don't have enough to claim deductions now, chances are donations aren't going to help. You'd have to give the equivalent of mortgage interest to have enough.

I'll add #8.

Get older. Over 65 taxpayers have a higher standard deduction.

Carol......house paid off, low tax state/county, but using the over 65 standard deduction.
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6. Donate to charity

If you don't have enough to claim deductions now, chances are donations aren't going to help. You'd have to give the equivalent of mortgage interest to have enough.

Between state income taxes and charitable contributions, I was able to itemize without paying mortgage-sized payments to charity. Of course, I was claiming only one person for my standard deduction becaues I am single.

I have since added mortgage interest and property taxes to the mix and I can tell you that, in my situation, it netted slightly more expensive to buy, after tax deductions, than renting. But then I control when my mortgage goes up (by refinancing) compared to the march of increasing rent.
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>You would seriously suggest that someone get a divorce so they pay less taxes?

I would, at least, suggest looking at traditions such as marriage in an open minded way instead of adhering to them slavishly.

>>3. Get divorced

>Isn't the new tax law closing the gap on this?

I believe it's closing one of about 20 marriage penalties in the tax code.

>If you don't have enough to claim deductions now, chances are donations aren't going to help.

As Mark said, it depends. You'd only have to add your charitable contributions to any other deductible expenses you have (e.g. state tax) to get you over the standard deduction.

>Get older. Over 65 taxpayers have a higher standard deduction.

Good one!

>it netted slightly more expensive to buy, after tax deductions, than renting.

If this is true, I'd always buy- you get appreciation, principal buildup, portfolio diversification, declining real (inflation adjusted) housing payments, etc. Not to mention the fact that rentals tend to be crappy, and usually won't bother fixing them up.

Nick
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My suggestion is to adjust to not using the tax 'refund' (read: 'interest free loan to the IRS') as your kitty, or otherwise as a savings strategy or 'source of income'. It's just not.

This is well said, you aren't paying mortgage payments anymore, who cares if you don't get a few or several grand back at the end of the year, you're also spending less month to month. Bottom line.

Besides, as this reply alludes to, but doesn't state explicitly (i.e. spending 100 bucks to save 20), a deduction only reduces your income, and you get taxed on your income at some rate, say 27% (or lower, I don't know your situation). Therefore, reducing your income by the amount of interest you paid in a year on a mortgage, by say oh...10K, would mean you'd pay 27% of that reduction LESS in taxes, but you still paid 7300 in interest that you'll never see again, no matter how you slice it! (roughly, but the logic is the point)
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