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Legitimate ways to reduce your tax bill

Interest paid on a home equity loan or line of credit also is generally deductible, as is interest paid on money borrowed to buy investment property.

And some homeowners might qualify to deduct their private mortgage insurance premiums. This policy is required by lenders in cases where a homebuyer is unable to make a substantial down payment. This deduction option, however, is limited to taxpayers who meet certain requirements (date the loan was acquired, loan amount), so carefully read the Schedule A instructions or follow your tax software's directions in claiming this tax break.

Gifts to charity 
The tax code allows you to deduct donations to qualified charities. This includes contributions to religious groups, nonprofit organizations, veterans' associations, not-for-profit schools and public park and recreational facilities.

The organization can provide you with its tax-deduction eligibility. You also can check IRS Publication 78, which is searchable online.

However, recently contribution rules have been toughened. You must keep a record of the contribution, such as a bank or credit card statement or canceled check. An official receipt from the charity also will suffice and is, in fact, required when the gift is $250 or more. The substantiation documents do not need to be filed with your return, but you will need them if the IRS has questions about the deductions.

As for donated household goods, the IRS now requires that the items be in good or better shape. If the agency later determines they were in bad condition, your tax claim could be denied.

You also can deduct the gift of a vehicle to a qualified organization. There are specific rules, however, as to how much you can deduct based on the value of the vehicle and how the charity uses the gift. IRS Publication 4303 (pdf), A Donor's Guide to Car Donations, provides details on figuring the deductibility of these gifts.

You also can deduct your travel costs to do charitable work, as well as out-of-pocket expenses related to a charitable endeavor, such as costs incurred for postage for a group's mailing.

And while there is no income threshold on donations, the IRS does set some limits here. Annual cash contributions in most cases cannot exceed 50 percent of your AGI. Annual gifts of property -- such as stocks, bonds and artwork -- cannot exceed 30 percent of your AGI. If you give more than those limits, you can carry over the amount that you're unable to deduct to future tax years.

Casualty and theft losses 
If you are the victim of casualty or theft, you can get some tax help in covering your losses on Schedule A.

Casualty loss deductions aren't limited to catastrophic damages, such as those suffered in a fire, flood, hurricane, tornado or earthquake. Losses from theft and vandalism are eligible, as are any damages from a car wreck (as long as it wasn't the result of driver negligence).

You cannot, however, deduct the full amount of your loss. You must complete Form 4684 (pdf) to determine how much you can claim.

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