Deductions and Credits

Tax credits are subtracted directly from taxes owed, while tax deductions lower your taxable income. The following includes some federal credits and deductions.

The Standard Deduction

For 2024, inflation bumped the standard deduction, which reduces your taxable income, to $29,200, up from $27,700 in 2023 for married taxpayers filing jointly; to $21,900 from $20,800 in 2023 for those who file as heads of household; and to $14,600 from $13,850 in 2023 for those who file as single or married filing separately.

Child Tax Credit

For tax year 2024, the Child Tax Credit remains $2,000 for any dependent under age 17 at the end of the year. The credit begins to phase out for single filers with a modified adjusted gross income (MAGI) above $200,000 and $400,000 MAGI for joint filers.

Child and Dependent Care Tax Credit

For 2024, the child and dependent care credit is 35% up to $3,000 of eligible expenses for one dependent and $6,000 for more than one. The credit isn’t refundable. In other words, you would get a $1,050 credit for $3,000 in expenses at 35% or $2,100 for 35% of $6,000 in expenses. The full credit phases out beginning at $15,000 in annual income.

Clean Vehicle Credit

The credit for clean vehicle purchases includes up to:

• $7,500 for the purchase of a new, qualified clean vehicle


• $40,000 for vehicles over 14,000 pounds


• Up to 30% of a used electric vehicle’s cost or $4,000, whichever is greater

Limits apply to the vehicle’s suggested retail price and buyers’ adjusted gross income (AGI). For single or married taxpayers filing separately, the AGI limit is $150,000. Heads of household have a $225,000 limit, and married taxpayers filing jointly and surviving spouses have a $300,000 AGI limit. Used vehicle buyers receive a tax credit based on smaller income limits.

You can learn if your purchase qualifies for the new credit by searching for manufacturing sites using the vehicle identification number (VIN) on the National Highway Traffic Safety Administration (NHTSA) at nhtsa.gov/vin-decoder.

Medical Expenses

If you itemize deductions on your tax return, you generally can deduct unreimbursed medical expenses exceeding 7.5% of your adjusted gross income. Travel expenses related to medical care, such as parking, mileage, and public transportation, can also be included. Tax professionals generally advise you to itemize medical expenses if they exceed the standard deduction.

Employee Business Expense Deduction

Most employees cannot claim unreimbursed business expenses as itemized deductions, but exceptions exist. Eligible employees include Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses. All expenses must be paid or billed during the tax year.

Home Loans

Married taxpayers filing jointly may deduct the interest on a mortgage of up to $750,000 of principal. The deduction is limited to half of that for single taxpayers. Interest on home equity loans, home equity lines of credit (HELOCs), and second mortgages may be deducted only when used to buy, build, or substantially improve the taxpayer’s primary or secondary qualified residence that secures the loan, subject to limits.

Real Estate Section 1031 Like-Kind Exchanges

The treatment of investment property for Section 1031 exchanges is limited to real property, including land and permanent structures on that land. If they’re of the same nature or character, even if they differ in grade or quality, you may be able to defer taxable gains when you sell investment property. You have 45 days after the sale to identify other income-producing property that you’ll purchase within 180 days of the sale or by the due date of your tax return, including extensions. Your tax professional can give you more information.

State and Local Taxes

Taxpayers are limited to $10,000 of state and local tax (SALT) deductions. This provision is especially harsh on homeowners in high-tax states, where state income and property taxes can easily exceed this figure.

If you’re a partner in a partnership or owner of an S-corporation, discuss the pass-through entity tax with your tax professional as a workaround for the $10,000 SALT tax deduction limit.