Retiree Deductions: The Big Five

Years of hard work will pay off in retirement, or at least that's the goal. One thing that's for sure is retirees are often entitled to special . After 50, the loosens its grip on your money, allowing you a little bit of room to maneuver. The sweet spot is after age 65 hits, when you're allotted a few more tax breaks. As a retiree at tax time, don't forget about these big five and that can save you more money for your golden years.

  1. Standard Deduction: The standard deduction is higher for retirees, as you get a bonus of $1,500 if either you or your spouse is 65 or older. The standard deduction varies depending on your filing status as follows:

Status                                                      Standard Deduction                                Standard Deduction, Age 65+

Single                                                      $6,300                                                        $7,850

Married, joint                                        $12,600                                                      $13,850

Married, separate                                 $6,300                                                        $7,550

Head of Household                              $9,300                                                        $10,800

 

The standard deduction is raised by $1,250 if you or your spouse are legally blind.

 

  1. Retirement Contributions: Contributions to a 401(k) are limited each year by the IRS, because they are tax-advantaged. Taxpayers under age 50 can contribute up to $18,000, and those over 50 get an increase of up to $24,000 annually. This applies to those who are still working and contributing to an employer sponsored 401(k) plan.

If you've already retired, you're still able to contribute $1,000 each year to a traditional or IRA, as part of the catch-up provision for taxpayers aged 50 and over. You're able to contribute to a traditional IRA until you are 70 ½, while a Roth IRA doesn't carry age restrictions.

 

  1. Medical Expenses: Generally, taxpayers who itemize are able to deduct unreimbursed medical expenses that exceed 10% of your . For instance, a taxpayer with an AGI of $50,000 has a threshold of $5,000. So, that same taxpayer with $10,000 in medical bills can deduct $5,000.

 

However, taxpayers over 65 years old (or their spouse) are entitled to a threshold reduction from 10% to 7.5%. This means the overall deduction can be higher. So, the above taxpayer, if over 65 can deduct around $6,0000 instead. Be warned though, that in 2017 this provision will be eliminated unless Congress acts, and the threshold will stay at 10% for everyone.

 

Long-term care insurance are also deductible, ranging between $380 to $4,750. Your age determines how much you are eligible to deduct, as the older you are the higher the deduction.

 

  1. Sale of Your Home: While this isn't a retirement-specific tax break, it can be increasingly beneficial to those looking to downsize during retirement. You are able to exclude up to $250,000 in capital gains related to the sale of your home if your single. Married taxpayers have an exclusion of $500,000.

 

Back in 1970 you bought a house for $100,000 and decided to sell it in your retirement for $350,000, you won't have to pay any of that gain to the government. However, there are a few requirements:

  • The house is your primary residence
  • You owned the house for two years
  • You lived in the house for two of the last five years prior to the sale, though the occupancy period doesn't have to be consecutive
  • You haven't had a home sale capital gain in the past two years

 

  1. Disability: If you (or your spouse) are retired and on permanent and total disability, you may be eligible for a credit between $3,750 and $5,000. Known as the Credit for the elderly and Disabled, the threshold is raised to $7,500 for those ages 65 and older.

 

This is a hard credit to claim however, as few people actually qualify. In most cases, Social Security Benefits cause you to exceed the limits. You also need to file a if you lived with your spouse during the year. The credit is non-refundable, too, so even if you qualify for $5,000 credit but owe $250 in taxes, you won't get the remainder back. You will, though, reap the benefits of a $0 tax bill.