I’ve read several articles today about people in several states who may benefit from paying their 2018 property taxes now because of the new law that was just passed. Apparently the amount one can deduct has been capped at $10,000.
What I don’t understand about money, property and tax law can just about fill the big valley on Mars that could supposedly hold several Grand Canyons. So I can’t tell if this is something I should do or not. If one’s property taxes are less than $10k does that mean there’s no point in pre-paying?
Anyone else looking into this and sending a check in the few days?
In CA, I don’t know that it counts as a “prepay” or not. We get a bill in the fall, for taxes due for the year July - July. Part of the tax is due in Dec and part is due in Feb, but there is nothing that says you have to wait until Feb to pay it. I paid the full amount in Dec, as I have done so for the last 30 years, so I don’t anticipate any problems this year.
Same here – no need. Even if you include the public-school-support funds withheld (I am not sure how unique PA is in the aspect of our property taxes) we’re way under the threshold.
Under the IRS ruling from today, the prepay trick will work for CA property tax. I prepaid mine and it will save me a grand or thereabouts by not going over the limit by as much next year.
From 2018, the deduction for the sum of state & local income tax plus property tax is limited to $10k. But the standard (non-itemized) deduction goes up to $12k ($24k for married couples), and that’s the key issue.
From 2018, many people will no longer have enough deductions to make it worth itemizing, they will just take the standard deduction instead.
So, if you have (say) $5k in property taxes each year, then unless you also have so many OTHER deductions that it’s still worthwhile itemizing in 2018, you will get no benefit from that $5k in 2018. So it’s better to take it in 2017 when you add it to your itemized deductions.
All of this is complicated by the AMT, which may just take away the benefit of the deduction anyway if your income is high.
Really the key is if the sum of your property tax and income tax is more than the standard deductible (the new one). The only states that can be true for most homeowners are NJ, NY, CA or CT. Only then would it be worth considering to prepay and even then there are stipulations. I am in NJ but I don’t think it pays for me to do it. Hopefully I won’t be making a mistake and be angry in April 2019.
The sum of your property tax and State income tax has to be more than $10k. The sum of that plus all of your other deductions like mortgage interest and charitable deductions need to be more than the standard deduction.
I just prepaid my 2nd half 2017 taxes that are due in February (California, and my property taxes are well over 10K per year). According to what the IRS has stated, this should allow met to deduct this next year. But, moving forward I’m screwed on this by this supposed tax reduction that is increasing my taxes.
That’s not exactly it either. There are two main groups who benefit from pre-paying, not counting odd ball cases (of people’s income being a lot different in 2017 than 2018, etc).
The first is the one almost all media accounts dwell on: people who will choose to itemize in 2018 despite the higher standard deduction and who will pay more than $10k in state/local income and property taxes in 2018 (if they don’t prepay any 2018 property tax in 2017).
The second main case, usually neglected in media, is where the taxpayer will pay least by itemizing in 2017 v the $6,350/$12,700 standard deduction for single/joint in 2017, but who will pay least by taking the much higher standard deduction of $12k/24k in 2018. Those people will benefit by prepaying 2018 property tax and adding it to their 2017 deductions no matter how small the property tax amount is. That's not big 's per taxpayer, but a large number of taxpayers, and not particularly concentrated in high tax states.
I’ve always paid the property tax due by Feb 15 by Dec 31 so that I could deduct it in the prior year. I’m doing the same tomorrow, hand carrying my check to the township. I fall in the group that will not be itemizing again due to the new $24K standard deduction.
This is why I prepaid, even though the IRS guidance provides uncertainty over whether my (less than $10k) will actually be deductible in 2017. With the new standard deduction, I’m not going to itemize next year. Figured I might as well prepay… not sure how it could have left me worse off (other than some potential investment return on the money).
Hmm, Florida has no income tax, and is a swing state with 29 electoral college votes. I think a lot of problems could be solved by a few million pissed off New York and California Dems moving their primary residence to Florida. (Except for the fact that they’d have to live in Florida, of course.)
Middle-class families who have followed the general financial advice of holding enough cash in a checking/savings account to cover 6 months of living expenses are in a position to do this. If your property tax is e.g. $4000, and your marginal income tax rate is 25%, then you might save as much as $1,000 by doing this. I say “might” because the IRS is being awfully cagey about whether they’ll allow people to deduct property tax if you pay it before you’re actually billed for it.
I’m curious. Is the IRS Advisory a change in policy? The policy itself seems perfectly reasonable to me, but the confusion at the local county level suggests that it’s new. I understand that the level of interest in prepaying has gone up, but when the issue first came up a number of Northern Virginia counties (where I live) were talking about how they had allowed prepayment in the past, although not many people had done it. So there must have been an IRS rule on deduction. What was it?
