8 Costly Tax Mistakes Retirees Make

You might not be keeping track, but the IRS is. “Their position is you make your money all year long. We want ours all year long,” Wild says.

He adds that paying taxes quarterly isn’t a retiree-specific rule. People who are self-employed or independent contractors are also responsible for paying their taxes four times a year. 

4. Not giving yourself credit for money you’ve put into your home

If your retirement plans included selling your home, you might be facing capital gains on the sale. If you’re a single filer, home sale profits above $250,000 are taxed as capital gains. For married couples filing jointly, the threshold is $500,000. But that doesn’t have to mean a huge tax bill, because the IRS taxes your profit — and you’re allowed to subtract money you spent on home improvements over the years. 

Wild says many people forget to deduct the costs of renovations and remodeling when calculating their profit from the sale of a home. If you’ve lived in your house for decades, those investments can really add up. “The house’s kitchen, bathrooms, roof, central air conditioning — all those improvements count and should be tracked,” he says.

5. Overlooking the new deduction for car loan interest

There’s another key tax provision in the OBBB to be aware of. If you took out a loan to buy a new vehicle in 2025, you might be able to deduct up to $10,000 of interest paid during the year — even if you don’t itemize your taxes.

To qualify, the vehicle’s final assembly must have taken place in the U.S., and it must weigh less than 14,000 pounds. (To find out where your car was assembled, enter the vehicle identification number into the National Highway Traffic Safety Administration’s VIN Decoder. The assembly location will be listed in the “Other Information” section.)

The deduction is gradually phased out based on your income. Once your modified adjusted gross income (MAGI) — your total adjusted gross income, plus certain tax-free income for people living out of the country — exceeds $100,000 ($200,000 for joint filers), the deduction is reduced by $200 for every $1,000 (or portion thereof) over the applicable threshold. You’re not eligible for the deduction if your MAGI is $150,000 or more ($250,000 or more for joint filers).

You can claim the car loan interest deduction whether or not you itemize. The deduction is in effect for tax years 2025 through 2028.

6. Missing out on the higher SALT deduction cap

The OBBB gives people in high-tax states a new incentive to itemize rather than take the standard deduction.

Before the Tax Cuts and Jobs Act (TCJA) of 2017, there was no limit to the amount of state and local taxes taxpayers could deduct on their federal tax returns if they itemized. But beginning in 2018, the so-called SALT deduction was capped at $10,000 a year for most filers. Because the TCJA also nearly doubled the standard deduction, it reduced the financial benefit of itemizing for many taxpayers.

For tax years 2025 through 2029, though, the OBBB temporarily raises the SALT cap to $40,000 for most filers. The limit will increase 1 percent each year through 2029, then drops back to $10,000 in 2030. For the 2025 tax year, the $40,000 cap is reduced by 30 cents for every dollar of MAGI over $500,000 ($250,000 for married people filing separately), to as low as $10,000.

Because of the higher SALT deduction cap, “we are expecting a lot more taxpayers to itemize,” says Brian Schultz, leader of the tax practice at Plante Moran Wealth Management.

7. Not planning for pretax retirement account withdrawals

Traditional 401(k)s and IRAs offer pretax contributions, lowering your current taxable income, but you have to pay income tax on that money when you start making withdrawals. Without a strategy in place, you could be digging deeper into your pocket than you would otherwise have to.  

If you have a large nest egg in pretax retirement accounts, “you’re accumulating a tax time bomb,” warns Schultz. Not preparing for the tax implications of required minimum distributions (RMDs) can lead to a surprise tax bill if the amount of your distribution pushes you into a higher tax bracket, and it could trigger Medicare premium surcharges as well.

“That’s where everything kind of comes back to proactive planning,” says Andy Evans, an Edward Jones financial adviser in Houston.

Many financial advisers recommend that clients transfer money from traditional 401(k)s and IRAs to Roth accounts. Because traditional retirement accounts are funded with pretax contributions, withdrawals are taxed at ordinary income rates. But Roth accounts are funded with after-tax dollars, which means two things: Your withdrawals are tax-free, and there are no RMDs. (Future earnings grow tax-free as well.) 

“Before the age of required distributions, we can plan ahead through Roth conversion strategies to lower those RMDs,” Evans says.

8. Getting the timing wrong on Roth conversions

Because money you convert from pretax retirement accounts into Roth accounts is taxed at your ordinary income rate in the year that you make the conversion, many financial advisers say the best time to convert them is in lower-income years. If you don’t time the conversion correctly, you could be stuck paying a higher marginal tax rate than the one you’d pay from conducting the conversion in a lower-income year. 

Conversely, because every dollar you convert gets added to your taxable income for that calendar year, converting a large amount of money into a Roth account in a single year — rather than spreading it out over several years, as many tax pros recommend — can reduce your eligibility for income-based tax breaks, including some of the new deductions in the OBBB.

“You have to be more careful now,” Schultz says. “For example, if I convert $10,000 of my IRA to a Roth … I also might be phasing out some of my deduction for being a senior.”

Consider speaking with a financial adviser who can help you determine when it makes sense for you to make a Roth conversion.