10 Tax Loopholes That Could Save You Thousands
It’s not criminal, though it might feel that way. Tax loopholes are legal ways to use the tax code to save yourself money. Tax avoidance strategies aren’t solely for the rich — plenty of tax deductions and credits are available for middle- and low-income taxpayers, too. You might be able to take advantage of the best tax loopholes to lower your tax bill.
Tax Loopholes for Low-Income Earners
Some tax loopholes come in the form of tax credits designed specifically for lower-income taxpayers. Two types of credits are available:
Refundable credits:
enable taxpayers to receive a refund of the credit amount that exceeds the taxpayer’s tax liability
Nonrefundable credits:
enable taxpayers to reduce their tax liability, but only to the amount of tax owed — excess credit is forfeited, not refunded
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Low-income earners are eligible for both types, including the following three credits.
American Opportunity Tax Credit
The American Opportunity Tax Credit (AOTC) is a credit designed for qualified education expenses incurred during the first four years of higher education for eligible students.
For tax year 2026, you may receive a maximum annual credit of $2,500 per eligible student. If the credit reduces your tax liability to zero, you can receive a refund of 40% of any remaining amount of the credit, up to $1,000.
The credit amount comprises 100% of the first $2,000 of qualified education expenses paid for each eligible student, and 25% of the subsequent $2,000 of qualified education expenses paid for that student.
To claim the full amount of the AOTC, you must have a modified adjusted gross income of $80,000 or less, or $160,000 or less if you’re married and filing jointly.
The allowable amount of the credit falls as your modified adjusted gross income (MAGI) rises. Once you top $90,000 — or $180,000 if you’re married and filing jointly — you’re no longer eligible for the credit.
Saver’s Credit (Retirement Savings Contributions Credit)
The saver’s credit — also known as the retirement savings contributions credit — is designed to help lower-income families contribute to retirement plans. If you qualify, this credit essentially pays you to put money in your retirement account. You can write off the first $1,000 of contributions — $2,000 for married couples filing jointly — you make to a qualified retirement plan, such as a 401(k) or a traditional or Roth individual retirement account.
Whether you can claim the credit depends on your income and filing status. To qualify, you must not be a full-time student or be claimed as a dependent on someone else’s tax return. You must also be at least 18 years old.
While the percent you can claim tapers out from 50% at lower income levels, the adjusted gross income limits for the saver’s credit are as follows:
Married and filing jointly:
$80,500 for tax year 2026 ($79,000 for 2025)
Filing as head of household:
$60,375 for tax year 2026 ($59,200 for 2025)
Single or married individuals filing separately:
$40,250 for tax year 2026 ($39,500 for 2025)
You can use this official IRS tool to figure out if you qualify.Bottom of Form
Earned Income Tax Credit
The earned income tax credit was designed specifically to assist low- to moderate-income families. Even single taxpayers can benefit from the credit, however. Income and the number of children in your household determine the amount of the credit, with eight possible tiers,
For tax year 2025, the income limit ranges from $19,104 if you’re single and have no children to $68,675 if you’re married and filing jointly and have three or more qualifying children. For 2026, those numbers rise to $19,540 and $70,224 respectively.
The 2025 maximum amount of earned income tax credit is:
$8,046 for three or more qualifying children
$7,152 for two qualifying children
$4,328 for one qualifying child
$649 for no qualifying children
The 2026 maximum amount of earned income tax credit is:
$8,680 for three or more qualifying children
$7,316 for two qualifying children
$4,427 for one qualifying child
$664 for no qualifying children
You must qualify for the credit by having business income or income from a job. When you’re claiming a qualifying child, they must be younger than 19 years old, unless they’re enrolled as a full-time student, in which case the age limit rises to 23. There’s no age limit for children who are permanently and totally disabled at any time during the tax year.
Tax Loopholes for the Middle Class
In general, income tax loopholes for individuals in this category are harder to come by, as phase-out rules make them ineligible for a number of credits and deductions.
Many credits are designed to help out lower-income taxpayers or pertain specifically to high earners; however, some credits and deductions are still available to middle-income earners. Check out these tax breaks that might help if you fall into this category.
Mortgage Interest Deduction
For middle-income taxpayers, your best chance of scoring a big tax break is with your home. When you buy a home, you can claim the mortgage interest deduction, which allows you to deduct the interest portion of your mortgage payment but not the principal.
In other words, you can’t write off your entire monthly payment, but you can deduct the interest payments you’ve made all year with a qualifying mortgage.
The deduction can be a big tax saver in cases where it makes sense to itemize deductions. When the amount of your mortgage interest deduction exceeds your standard deduction, you’ll save more money if you itemize.
For tax year 2025, the standard deduction amounts are:
$15,750 for single filers or married filing separately
$23,625 for head of household
$31,500 for married filing jointly and qualifying widows and widowers
For tax year 2026, the standard deduction amounts are:
$16,100 for single filers or married filing separately
$24,150 for head of household
$32,200 for married filing jointly and qualifying widows and widowers
If you are 65 years of age or older, or visually impaired, you are eligible to receive an extra standard deduction of $6,000 starting with the tax year 2025. This amount remains the same whether you file as single or head of household. If you meet both criteria of being 65 or older and visually impaired, your additional deduction doubles.
The IRS publishes extensive information on what a qualifying home is and who can claim the mortgage interest deduction. However, most standard mortgages qualify, as long as the loan is for your primary residence and you are the homeowner.
Lifetime Learning Credit
The lifetime learning credit is an educational tax credit that’s similar to the American opportunity tax credit. However, when you claim one of these two credits, you cannot claim the other for the same student.
Unlike the refundable AOTC, the lifetime learning credit is nonrefundable. You can claim the lifetime learning credit for an unlimited number of tax years, whereas the American opportunity tax credit has a four-year maximum.
The lifetime learning credit lets you claim up to 20% of the first $10,000 in qualifying expenses — up to $2,000 per tax return — to help offset the educational costs of a qualifying student.
In the tax year 2026, the value of your LLC gradually diminishes if your MAGI falls between $80,000 and $90,000 — $160,000 and $180,000 for joint filers. The credit cannot be claimed if your MAGI exceeds $90,000, or $180,000 for joint filers.
The tax credit is available regardless of your age, as long as it goes toward a qualifying educational expense, such as qualified tuition and related expenses. The IRS outlines what may or may not qualify for various educational tax credits, so you’ll have to do some legwork before you claim all expenses. For example, room and board and transportation are not qualifying educational expenses, and books, supplies and equipment qualify for the AOTC but not the LLC.
Child Tax Credit
The child tax credit is for taxpayers with qualifying children, and they can claim this on top of the earned income credit and credit for child and dependent care expenses.
The child tax credit can be worth up to $2,200 per child living in your household for the 2025 and 2026 tax years, and it’s partially refundable. The amount you receive is contingent upon your income, particularly your modified adjusted gross income.
To qualify, you must claim the child as a dependent on your taxes, and the child must have a Social Security number by the date on your tax return, be age 17 or younger at the end of the year and be currently living with you for at least half the year.
A $500 nonrefundable credit can be applied to eligible dependents who can’t be claimed for the child tax credit.
You might qualify for the full child tax or other dependent credit if your modified adjusted gross income is less than the following amounts:
$200,000 for single filer, married filing separately, head of household or widowed person
$400,000 for married filing jointly
Beyond that the credits start to phase out. There is also a $2,500 phase-in threshold, but most households will meet this.
Retirement Savings Accounts
Although taxpayers of all income levels are eligible to contribute to retirement savings accounts, the tax benefits are typically more accessible to middle-income earners. Low-income taxpayers often can’t afford to contribute the maximum amount to retirement accounts, and high-income earners are ineligible for tax breaks on certain accounts.
However, the benefits can be huge for those who can afford to contribute to retirement savings accounts. Contributions to employer-sponsored 401(k) plans and individual retirement accounts are eligible for tax deductions that can reduce your total taxable income.
For example, if you contribute $5,000 to your company 401(k) plan, the amount of your taxable income drops by $5,000.
Retirement accounts offer more than just an immediate tax benefit: As long as you keep the money in the account, it grows tax-deferred. For a regular brokerage account, you would owe taxes annually on dividends and capital gains payouts, but if you have a retirement account, you pay taxes only when you make a withdrawal from the account.
Contributions to a Roth IRA or Roth 401(k) don’t qualify for a tax deduction at the time you make the deposit. Instead, you withdraw your earnings and contributions tax-free once you’re 59 1/2 years old. Roth IRA contributions come from post-tax income — you pay taxes on your income now, but not in the future. You don’t get the immediate tax break for Roth IRAs like you do for pretax accounts like traditional IRAs and 401(k) plans. Their tax advantage is in years when you anticipate your taxable income to be less than the future Roth account’s retirement withdrawals.
The contribution limits for 2025 are $23,500 for 401(k) plans and $7,000 for IRAs, not counting self-employed taxpayers’ ability to contribute as an employer to instruments like a SEP-IRA. The 2026 contribution limits are 24,500 for 401(k) plans and $7,500 for IRAs,
Cash Charitable Deductions
Charitable deductions typically favor the rich, as you’re required to itemize in order to claim them. But in the event you do itemize, you can write off contributions to qualified charitable organizations.
Eligible deductions include monetary donations and the fair market value of property you donate. Save your receipts, though — you’ll need a written record to claim contributions of $250 or more.
Tax Loopholes for the Rich
High-income taxpayers face both challenges and benefits when it comes to tax loopholes. On one hand, having a high income makes taxpayers ineligible for a lot of tax breaks — or at least reduces their benefits. On the other hand, many tax breaks are more beneficial for the wealthy and amplify their savings, because they pay a high tax rate.
Examine these benefits that might apply to you if you’re a high earner.
Capital Gains Tax
Although the capital gains tax loophole is available to taxpayers of all income levels, it benefits high-income earners — or filers in the 25% or higher tax bracket — the most. The reason comes down to the progressive structure of the tax system.
The special tax rate on capital gains is beneficial to high-income earners because the tax on long-term capital gains and qualified dividend income for most taxpayers is 15% to 20%, depending on their income level. Exceptions include the higher 25% tax rate on unrecaptured Section 1250 gains — which is a type of depreciation-recapture income realized on the sale of depreciable real estate — and the 28% tax rate on the sale of collectibles or small-business stock.
Meanwhile, the tax rate on a high earner’s ordinary income can be as high as 37% for the 2026 tax year. This disparity in rates can translate to great tax savings.
For example, say you’re already in the highest tax bracket from your salary, and about to receive a $100,000 windfall. When this money is taxed as ordinary income, you’ll owe as much as $37,000 in federal income tax, or $100,000 multiplied by the highest income tax rate of 37%.
But if this income comes in the form of a capital gain, you’d pay only $23,800 in federal income tax, or $100,000 multiplied by the 20% capital gains tax rate plus the 3.8% net investment income tax for high earners — which amounts to a savings of $13,200.
High-Income Mortgage Interest Deduction
The mortgage interest deduction for middle-income earners can benefit high-income earners even more at tax time. Statistically, higher-income earners are more likely to itemize deductions rather than take the standard deduction. Additionally, higher-income filers tend to have larger mortgage payments, which increases the potential amount of their mortgage interest deductions.
For example, you generally need a high income to get a mortgage for $1 million. If you’re paying interest on a mortgage that large, you’ll have more interest to deduct than a taxpayer who pays interest on a $350,000 mortgage.
But there’s a limit to this loophole. The IRS only allows mortgage deductions on up to $750,000 in loans to buy or repair a home. Therefore, the super wealthy with multimillion-dollar homes won’t benefit any more than high-income taxpayers with a mortgage of $750,000 — $375,000 if married filing separately.
The exception to this rule is if you took out your mortgage before Dec. 16, 2017. In that case, you can deduct the interest on up to $1 million in indebtedness if you are married and filing jointly — or $500,000 if married filing separately.
In addition to the mortgage interest deduction, you can deduct the interest you pay on a home equity loan used to build, buy or substantially improve the primary or second home you’re borrowing against. The only caveats are that the home equity loan and first mortgage cannot total more than $750,000, and the total loan amounts cannot exceed the cost of the home.
There’s more good news: You can deduct up to $10,000 of combined state and local income and property tax — or $5,000 if you’re married and filing separately.
Carried Interest Loophole
The carried interest loophole basically applies to high-income taxpayers only. Venture capitalists, hedge fund managers and partners in private equity firms are eligible for special tax treatment based solely on their occupations.
The carried interest loophole is a variation on the capital gains tax benefit. Paid compensation in these professions is considered a distribution of investment fund profits, which is called carried interest. Because this income is regarded as an investment profit rather than a salary or wage, it’s taxed at the long-term capital gains rate instead of the regular income tax rate — which can be significant for those in high-income tax brackets.
For example, a $1 million salary would be subject to the 37% tax rate plus a 3.8% net investment income tax, which would come out to $408,000. When salary is considered carried interest, however, that same $1 million would be subject to only the top 20% capital gains rate plus a 3.8% net investment income tax, which would come out to $238,000.
Whereas regular capital gains are taxed at a lower rate when the taxpayer holds the investment for at least a year, the holding period for carried interest is three years.
Find Your Loopholes
Regardless of your income level, plenty of tax loopholes exist that you can use. From educational credits to savings on retirement contributions, there are likely deductions or savings that are relevant to you. Use this list as a starting point and see how much you can save.
Laura Beck, Daria Uhlig and John Csiszar contributed to the reporting for this article.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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