- - 8 Tax Deductions Retirees Always Forget (Including One Worth $3,000+)

Adam PalascianoDecember 26, 2025 at 12:20 AM

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Retirees may assume their tax bill will shrink automatically once they leave the workforce, but that's not always the case. In fact, retirees may miss deductions that could meaningfully reduce their taxable income. When you're living on a fixed budget, overlooking even one tax break can cost hundreds — or even thousands — of dollars. Understanding which deductions you qualify for can make planning for retirement far less stressful.

Before filing your return, take time to review the tax breaks that retirees can sometimes forget.

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1. Medical and dental expenses exceeding 7.5% of your AGI

For retirees with higher health care costs, medical expenses can unlock one of the largest possible deductions. The IRS allows taxpayers who itemize to deduct qualified medical expenses that exceed 7.5% of their adjusted gross income (AGI) — a threshold that may be easier to meet in retirement when income may be lower. Eligible expenses include doctor visits, surgeries, prescriptions, dental treatment, and long-term care services.

For some retirees, this deduction alone could exceed $3,000, especially if they've experienced major medical procedures.

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2. State and local taxes (SALT) deductions

Retirees who itemize can deduct eligible state and local taxes — including property, income, or sales taxes — on their federal return. Effective beginning in 2025 through 2029, the SALT deduction cap jumps from the old $10,000 to $40,000 under the One Big Beautiful Bill Act (OBBB).

For many retirees in high-tax states or with substantial property taxes, this increase can significantly reduce their federal taxable income, making itemizing more attractive than the standard deduction.

3. Charitable contributions

Retirees who donate to qualified charities can deduct those contributions if they itemize. This includes cash gifts, appreciated securities, and non-cash donations — as long as you keep proper records. Donating appreciated investments can also help you avoid capital gains taxes, which increases the value of the deduction.

Additionally, a donor-advised fund (DAF) can streamline the process for retirees who want to make charitable gifts to qualifying organizations.

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4. Tax preparation fees for rental or investment income

While tax preparation fees are no longer deductible for most taxpayers, retirees with rental properties or complex investments may still qualify. Expenses related to producing taxable income — including portfolio management fees or rental-property tax prep — can sometimes be deducted too.

This deduction can be especially helpful for retirees relying on rental units, REITs, or other passive income sources.

5. Medicare premiums if you're self-employed

Retirees who continue working as freelancers, consultants, or small-business owners may overlook this deduction. If you have self-employment income, you may be able to deduct Medicare Part B, Part D, and Medicare Advantage premiums.

For retirees balancing part-time work and rising health care costs, this deduction can make a meaningful difference.

6. Long-term care insurance premiums

Premiums for qualified long-term care insurance may be deductible up to annual IRS limits, depending on your age. Retirees may forget this deduction, even though long-term care coverage can get more expensive over time, which can increase the value of this write-off.

Including these premiums can reduce taxable income while helping retirees plan for future care needs.

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7. Investment interest expense deduction

Retirees who borrow money to invest — such as using a margin loan to buy stocks or an investment property — may qualify for an investment interest expense deduction. This deduction allows you to write off the interest you paid during the year, up to the amount of your net investment income.

Retirees may forget this tax break because it applies only in certain investing situations, yet it can be worth thousands for those with sizable portfolios. Keeping detailed brokerage statements makes it easier to claim the full amount you're eligible for.

8. Home sale exclusion when downsizing

Retirees who sell their home may qualify for one of the most valuable tax breaks available — the home sale capital gains exclusion. Individuals can exclude up to $250,000 in gains from the sale of a primary residence, and married couples can exclude up to $500,000 if they meet the ownership and use tests.

Retirees who downsize could forget this benefit, which can dramatically lower or eliminate taxable gains.

Bottom line

Retirees often have access to more tax deductions than they realize, and claiming them correctly can free up money for health care, travel, or everyday expenses. By reviewing your medical costs, charitable gifts, investment expenses, and other eligible write-offs, you may be able to meaningfully reduce your taxable income.

The more you understand these deductions, the easier it becomes to build a retirement plan that helps you maximize your senior benefits and keep more of what you've earned.

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