Get more mileage from your military paycheck by knowing and claiming the tax benefits of certain consumer debts. Yes, even your debts can carry legitimate tax deductions that not everyone is aware of.
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How Tax Deductions Can Turn Tax Day Into Pay Day

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The IRS wants to help get you get more money on tax day. Get more mileage from your military paycheck by knowing and claiming the tax benefits of certain consumer debts. Yes, even your debts can carry legitimate tax deductions that not everyone is aware of.

In fact, you can consider that the interest paid on your consumer debt falls into two categories: tax-deductible and nondeductible.

Home-equity loan interest, home mortgage interest, student loans, and money borrowed to purchase investment property can all be tax deductible.

ITEMIZED TAX DEDUCTIONS FOR HOMEOWNERS

Military homeowners can claim tax deductions during three different times - when buying a home, during the time of ownership, and when selling the home.

When you become a new military homeowner, you may be entitled to instant rebates, depending on what is available in the timeframe of your home purchase. Plus, you get many new tax breaks in the form of itemized deductions.

During homeownership, servicemembers can borrow money against home equity -- which is the difference between what is owed and what the house is worth. VA home equity loans can either be a fixed amount tied to a fixed interest rate, or a line of credit that can be used anytime, often with a variable interest rate. Interest paid on up to $100,000 of home equity debt is tax deductible, often regardless of how the loan money is spent.

TAX-FREE PROFIT ON YOUR HOME

When selling your home, up to $250,000 of the profit you gain is yours tax free. That amount increases up to $500,000 for married couples filing joint taxes.

In order to qualify for tax-free benefit on the sale of a home, you must have lived in the house for at least two of the 5 consecutive years prior to its sale.

Some military servicmembers choose to own a home, even if they are moved for active duty frequently, and maintain ownership of their homes in order to benefit from this very beneficial tax break when they ultimately sell their home.

STUDENT LOAN TAX BREAKS

Statistically, student loans are the biggest source of debt facing college graduates and their families.

Of course, as military, you have access to the outstanding expanded benefits of the new GI Bill, which can make college tuition irrelevant for you, even for your family members to whom you may be able to transfer GI Bill benefits.

But should you find that you do have some supplemental need for student loans even as military, the tax break known as an "above the line deduction." This tax break allows you to deduct up to $2,5000 in interest paid on education loans or school expenses - regardless of whether you itemize your deductions.

TAX-DEDUCTIBLE INVESTMENTS

Did you know that interest paid on money borrowed for investment purposes is, in most cases, tax deductible? It's true - as long as your investment is intended to produce taxable income.

For example, if you borrow a margin loan from your broker to invest in stocks or taxable bonds, the interest is tax deductible.

However, if the borrowed money is invested in tax-exempt securities, single premium life insurance policy, or annuity, then the interest is not tax deductible.

Another limitation to investment tax benefits is that the write-off is restricted to the amount of taxable investment income reported. Investment income includes interest, annuities, or royalties - but not capital gains or qualified dividends.

Other important tax deductions include charitable contributions, state income taxes, and, in some cases medical bills.

By knowing which of your debts are tax-deductible, you may just look forward to April 15 as the day you get to put some extra money in your pocket. And that additional tax-break money can be saved, invested, and leveraged to bring you and your military family closer to financial freedom.

By the way - there's no need to wait till April 15 to start benefiting from eligible tax breaks. Adjust your tax withholdings to the maximum allowable to increase the amount you see in every military paycheck, creating additional income that can help your military family live a financially comfortable military life and rise above debt, now.



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