14 Valuable Tax Breaks for Seniors

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SILVER LININGS

With age comes wisdom, as well as certain tax breaks. While seniors often face lower income and higher expenses (think health care and assisted living), there are also numerous federal and state rules aimed at easing their tax burden. Here are some tax breaks to remember during the golden years.

Related: Don't Fall for These 12 Common Tax Myths

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STANDARD DEDUCTION

People who take the standard deduction on their federal tax returns instead of itemizing enjoy a little bump in that line item when they turn 65. Single taxpayers 65 and older can deduct an additional $1,550; for couples, the increase is $1,250 if one spouse is 65 or older and $2,500 if both spouses are at least 65.

Related: 13 Retirement Mistakes to Avoid

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PROPERTY TAXES

Every state has some sort of property-tax benefit for seniors, although the eligibility age varies. Six states have programs that freeze property taxes completely for seniors, and 10 limit how much a property's tax value can increase. Also, the homestead exemption can be larger when a homeowner reaches a certain age. (The larger the exemption, the lower the tax.) In Colorado, seniors 65 and older can exempt up to 50 percent of their residence's first $200,000 in value.
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INCOME EXCLUSIONS

Some states let senior taxpayers exclude quite a bit of income before taxes kick in: up to $65,000 in Georgia, $41,110 in Kentucky, and $68,000 in Tennessee. By 2020, New Jersey will allow residents to exclude up to $100,000 of retirement income.
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SOCIAL SECURITY

In 37 states, Social Security benefits are not taxed, either because there is no state income tax or because Social Security is subtracted from federal adjusted gross income.
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FREE AND CLEAR

Three states -- Illinois, Mississippi, and Pennsylvania -- exempt all pension income from taxes. In New Mexico, people over 100 don't have to pay taxes on any income.
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NO FILING FOR LOW-INCOME SENIORS

Married couples 65 and older with income (not including Social Security) under $23,100 do not have to file a federal return at all. The limit is $21,850 if one spouse is under 65, and $11,850 for individuals.
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SAVER'S TAX CREDIT

People looking toward the future can take advantage of this tax break before they retire. It's a tax credit toward the first 50 percent, 20 percent, or 10 percent of $2,000 that's put into a retirement account, such as an IRA or an employer's retirement plan. Eligibility depends on income level, with the credit aimed at low- to moderate-income taxpayers. Those with the lowest income receive the biggest credit.
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MEDICAL AND DENTAL EXPENSES

People 65 and older can deduct medical and dental expenses -- potentially huge for seniors -- that total more than 7.5 percent of adjusted gross income (the amount will increase to 10 percent for 2017 taxes next year). These expenses include devices like wheelchairs or hearing aids, in-home nursing or caregiving, and prescribed nutritional supplements.
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MEDICARE DEDUCTIONS

Medicare Part B premium payments are considered a medical expense. The same goes for prescription plan premiums under Medicare Part D. Since this money comes out of pocket, it's also deductible.
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HOME DOWNSIZING

Selling a principal residence for a profit in order to move someplace smaller, or warmer, does not have to incur capital gains taxes. The Internal Revenue Service allows a profit of up to $500,000 for a married couple.
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CREDIT FOR THE ELDERLY AND DISABLED

Seniors 65 and older with income less than $25,000 if married filing jointly or $17,500 if filing individually can get a tax credit of $3,750 to $7,500. This credit also applies to people who had to retire before age 65 because of a disability.
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STILL INVESTING

Seniors can continue to contribute up to $6,500 (rather than $5,500 for those under 50) to a traditional IRA, as long as they are not withdrawing funds. They might (depending on income) get a tax deduction for that contribution. But contributions are no longer allowed the year the account holder turns 70.5.
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CASHING OUT

Tax- and penalty-free withdrawals from a Roth IRA can begin at age 59.5 as long as the account is at least 5 years old. The money wasn't tax-deferred when it was contributed, but the interest or other income from the account are tax-free when withdrawn.
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BREAKS FOR INVESTORS

Retirees living off their investments get some breaks. Interest income, dividends and capital gains on investments are taxed at a lower rate than regular income, generally 15 percent or not at all. And expenses relating to investing, like accounting fees, online brokerage fees, and fees to financial planners can be deductible.