Real estate may be about “location, location, location” – but when it comes to taxes, think “deductions, deductions, deductions.”

A deduction cuts the income you're taxed on. A deduction can mean a lower tax bill, while a credit can even cut your tax bill directly.

“A tax deduction lowers your taxable income and thus reduces your tax liability,” Nerdwallet.com reported. “You subtract the amount of the tax deduction from your income, making your taxable income lower. The lower your taxable income, the lower your tax bill.”

A tax credit, on the other hand, is a dollar-for-dollar reduction in your actual tax bill. Most credits aren't actually refundable, but a select few are. That could mean that if you were to owe $250 in taxes, but qualified for a $1,000 credit, you'd actually get the difference repaid to you.

“There are two ways you can take deductions on your federal income tax return: you can itemize deductions or use the standard deduction. Deductions reduce the amount of your taxable income,” the IRS explained.

First, there is the standard deduction. The standard deduction’s value varies depending on your income and age. There are also deductions for those who may be legally blind. However, certain taxpayers cannot use the standard deduction, such: a married individual filing as married yet filing separately whose spouse itemizes deductions; an individual who files a tax return for a period of less than twelve months because of a change in his or her annual accounting period; an estate or trust, common trust fund, or partnership; or an individual who was a nonresident alien or a dual-status alien during the year. However, nonresident aliens who are married to a U.S. citizen or resident alien at the end of the year and who choose to be treated as a U.S. resident for tax purposes can take the standard deduction.

Alternatively, taxpayers should itemize deductions if allowable itemized deductions are greater than the standard deduction, or if you must itemize deductions because you can't use the standard deduction.

“You may be able to reduce your tax by itemizing deductions on Schedule A (Form 1040), Itemized Deductions,” the IRS explained. “Itemized deductions include amounts you paid for state and local income or sales taxes, real estate taxes, personal property taxes, mortgage interest, and disaster losses. You may also include gifts to charity and part of the amount you paid for medical and dental expenses.”

Individual itemized deductions may be limited, but you can benefit by itemizing if you can't use the standard deduction; had large uninsured medical and dental expenses; paid mortgage interest or real property taxes on your home; had large “Other Itemized Deductions” (line 16 on Schedule A (Form 1040)); had large uninsured casualty or theft losses from a Federally declared disaster; or made large contributions to qualified charities.

Here are some tax deductions you can itemize: mortgage interest of $750,000 or less, mortgage interest of $1 million or less if incurred before Dec. 16, 2017; up to $250 for educators buying classroom supplies; medical and dental expenses, which are over 7.5% of adjusted gross income; state and local income, sales, and personal property taxes up to $10,000; gambling losses; investment interest expenses, and even up to $2,500 in student loan interest – in the latter case, these do not need to be placed on Schedule A but can be taken above-the-line and subtracted from your taxable income.

As Investopedia also explained, itemized deductions help some taxpayers lower their annual income tax bill more than the standard deduction would provide. In addition, the surviving itemized deductions include several categories like medical expenses, mortgage interest, and charitable donations. Finally, it suggested that itemizing most often makes sense for higher-income earners who also have a number of large expenses to deduct.

Financial experts recommend keeping detailed records, and when in doubt consult a professional tax filer.

Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers and websites. He regularly writes about military small arms, and is the author of several books on military headgear including A Gallery of Military Headdress, which is available on Amazon.com.

Image: Reuters.