$10,000 state deduction limit

[Mighty-Dollar]

My understanding of this new Federal tax package that's about to be passed in Congress is that there will be a $10,000 cap on state and local taxes. I pay over $13,300 in property taxes (welcome to California!). My state taxes are about $650 per year. In total that's about 4K that I won't be able to deduct next year, right? I assume this tax package will apply to 2018 onward? 

My question is whether some people are paying their 2nd installment of property taxes early this year?  Seems to me I'll get more write-off bang for my property tax bucks this year. Next year much of that just goes to waste if I'm interpreting this correctly.

[MDM]

Won't work if the property taxes are for 2018.  See Republican Tax Plan 2017.

[Livewell]

Nice FU from the republicans on that last minute change.  We’ll remember that one!

A question though - we prepaid our second property tax early, which is part of our local county’s July-June FY17-18 and due by the middle of April.  Can we still deduct that in 2017?  Technically I could see it falling into 2017 taxes because there is no specific reason you can’t pay early during the county’s FY, but seems open to interpretation.  Any CPA’s out there with a thought on this?

[Mighty-Dollar]

Won't work if the property taxes are for 2018.  See Republican Tax Plan 2017.

This raises yet another question. My property tax bill says "annual property tax bill" for "2017". More specifically it's for July 1, 2017 to June 30, 2018. The 2nd installment isn't due until 2/1/2018. The installment stub still says "Annual 2017".

http://www.timesunion.com/news/article/New-Yorkers-could-pay-2018-property-taxes-early-12431829.php

[Debts_of_Despair]

The standard deduction is nearly doubling.  Are you itemizing many other expenses?

[MDM]

Won't work if the property taxes are for 2018.  See Republican Tax Plan 2017.

This raises yet another question. My property tax bill says "annual property tax bill" for "2017". More specifically it's for July 1, 2017 to June 30, 2018. The 2nd installment isn't due until 2/1/2018. The installment stub still says "Annual 2017".

Old or new law, paying in 2018 means it's ineligible for a 2017 deduction.

In the example here, the local taxable year does not begin after December 31, 2017, so payments made in 2017 should be deductible.  See quote from the bill below, highlights added, and as always IANAL.

...an  amount  paid  in  a  taxable  year  beginning  before  January  1,  2018,  with  respect  to  a  State  or  local  income
tax  imposed  for  a  taxable  year  beginning  after  December  31,  2017,  shall  be  treated  as  paid  on  the  last
day  of  the  taxable  year  for  which  such  tax  is  so  imposed.

[Mighty-Dollar]

I think I'll just go ahead a pay it. If I'm disallowed the full deduction for 2017 on my second property tax installment then no loss. It won't work for 2018 either.

[Livewell]

I think I'll just go ahead a pay it. If I'm disallowed the full deduction for 2017 on my second property tax installment then no loss. It won't work for 2018 either.

I did the same thing - worse case I paid it early.

Reading through everything, I think it will be deductable for 2017.  A silver lining. 

[Rocketman]

As individuals we are cash basis taxpayers (unless you qualify and elect to be an accurate basis taxpayer) so you can deduct when you pay for them.

[DavidAnnArbor]

As individuals we are cash basis taxpayers (unless you qualify and elect to be an accurate basis taxpayer) so you can deduct when you pay for them.

Yes that is key to understanding which tax year you get to deduct. In fact prepaying taxes this year is one way to at least modify the impact of the new tax law regarding SALT for 2018.

[FireOnTheMuffin]

Note that the language in the bill says "state and local income tax".  Property tax is a different category and I believe prepaying the 2nd half of the 2017-2018 tax year bill in 2017 should be deductible in 2017.  I have already done it.

[Enigma]

I have been glued to the same question.  I keep checking the 'taxfoundation' in case things change.  According to the article (link below) "repealing the deduction for state and local income and sales taxes, but retaining the deduction for property taxes" is the most common road at this time.


https://taxfoundation.org/five-implications-retaining-property-tax-deduction-federal-tax-reform/

[mtnman125]

It seems to me there is not a clear answer on this one.  I'm borderline on taking standard deduction this year, but considering pre-paying first installment of property tax early. 

If in fact it is not allowed, what are the implications if i do anyway?  Tax software gives you a heads up, or an audit from IRS?

Whether I pay it in December or February doesnt matter budget wise, and i'll be taking standard deduction in 2018 regardless.

[MDM]

Whether I pay it in December or February doesnt matter budget wise, and i'll be taking standard deduction in 2018 regardless.

Perhaps pay in December, and by the time you file 2017 taxes the deductibility will likely be much clearer than it is now.

[Trudie]

I prepaid my first property tax bill which would be due in 2018.  You will deduct them in the tax year that corresponds with the date on your check.  (Read up on the IRS concept of "Constructive Receipt.")

Different taxing authorities have different policies about how they apply tax pre-payments to your account, so it helps to call them first.  But in my case it was a non-issue.

CPA here - although I don't practice tax.

[wenchsenior]

I called my county assessor about this topic yesterday, hoping to squeeze in a THIRD year of property tax payments in 2017.  They said I am not allowed to prepay for 2018.  They allow me to double up on property taxes in a single year if the actual tax bills have been sent out (e.g., I had already paid 2016 taxes in January 2017, and 2017 taxes in November 2017) in one year, but apparently they do not allow prepayment of any sort for the following year if the actual bills have not come out.

Hunting around the internet, this appears to be a county by county/state by state kind of question, so some places will likely allow it and some will not, regardless of the effects of the GOP tax bill.

[MightyAl]

Correct me if I am wrong but my understanding is that the $10,000 cap is on property taxes only.  All state and local income tax deductions go away with the new tax bill. 

[MDM]

Correct me if I am wrong but my understanding is that the $10,000 cap is on property taxes only.  All state and local income tax deductions go away with the new tax bill.

Fortunately, you are wrong.  At least as of this past Friday's gyration.

See

All,

Suggest a review of the Kitces analysis on the tax plan along with recommended 2017 actions.

It’s a well done analysis which skips the debate about the reasoning behind the changes.

WoodSpinner

[ixtap]

Correct me if I am wrong but my understanding is that the $10,000 cap is on property taxes only.  All state and local income tax deductions go away with the new tax bill.

Keep up! The compromise bill kept the $10k cap, but allowed for income tax.

[jean]

Yes, you should do this.

The NYT article quoted in the other thread (linked above) seems to have been updated and now only says "state and local income tax" can't be pre-paid, without mention of property tax.  Several other sources say the same thing - property taxes can be paid and deducted in 2017. 

I get a bill in the fall that allows for 2 installments, one in ~december and one in ~april.  I'm paying them both in december to keep in tax year 2017.

One exception is if you are paying or very close to paying the AMT.

[ShoulderThingThatGoesUp]

The standard deduction is nearly doubling.  Are you itemizing many other expenses?

This is what I don't understand - I think a lot of people are doing crazy gimmicks for no reason here.

[terran]

The standard deduction is nearly doubling.  Are you itemizing many other expenses?

This is what I don't understand - I think a lot of people are doing crazy gimmicks for no reason here.

Technically this is true, but really the personal exemptions were folded into the standard deduction and the standard deduction was then increased a further few thousand.

[I'm a red panda]

The standard deduction is nearly doubling.  Are you itemizing many other expenses?

This is what I don't understand - I think a lot of people are doing crazy gimmicks for no reason here.

The crazy gimmicks are to get everything into THIS year- before the standard deduction doubles.

Then in alternating years later- because most people won't be able to itemize every year anymore, but might be able to every other year.

[Debts_of_Despair]

The standard deduction is nearly doubling.  Are you itemizing many other expenses?

This is what I don't understand - I think a lot of people are doing crazy gimmicks for no reason here.

I think some people are upset that the property tax deduction they used to justify buying a large house has disappeared.  They will now pay less taxes overall but they don't necessarily have to pay the property taxes to get the new, bigger standard deduction.  Their exclusive homeowner advantage is gone. Obviously I am only talking about people who no longer have enough itemized deductions to push them over the standard deduction. 

[Mighty-Dollar]

I just heard on the radio an accountant talking about how he's advising his clients to pay not just all 2017 property taxes (including the 1/2 that's not due until April) but also state taxes before the end of the year.

[aetheldrea]

I just heard on the radio an accountant talking about how he's advising his clients to pay not just all 2017 property taxes (including the 1/2 that's not due until April) but also state taxes before the end of the year.

Most working people pay their state taxes the same way they pay federal, through paycheck deductions or estimated quarterly payments for self-employed. Advice to keep doing that is all well and good, but not useful to most people.

[Mighty-Dollar]

In paying my 2017 California state taxes before the end of the year I will have to estimate the exact amount because I haven't see all of my 1099's, there could be dividends paid on Dec 31st, etc. So if I underpay do I just send in a second payment before April 15th and write "2nd installment" or something? Or just send in a check for the rest of the balance due with a second voucher?

[Captain FIRE]

The standard deduction is nearly doubling.  Are you itemizing many other expenses?

This is what I don't understand - I think a lot of people are doing crazy gimmicks for no reason here.

I think some people are upset that the property tax deduction they used to justify buying a large house has disappeared.  They will now pay less taxes overall but they don't necessarily have to pay the property taxes to get the new, bigger standard deduction.  Their exclusive homeowner advantage is gone. Obviously I am only talking about people who no longer have enough itemized deductions to push them over the standard deduction.

Bolded is false/misleading.  A lot of people are going to pay more in taxes, particularly down the road in ~10 years when the benefits expire to pay for the corporate benefits.  I live in one of those HCOL coastal states getting screwed over by the bill - I'll pay a bit more initially and quite a bit later on, so hell yeah we paid (6 months of) our property tax early, given the tax bill is silent on that point.

And you drank the cool aid if you focus only on the standard deduction and ignore the personal exemption disappearing.  They basically cancel each other out.

[Debts_of_Despair]

The standard deduction is nearly doubling.  Are you itemizing many other expenses?

This is what I don't understand - I think a lot of people are doing crazy gimmicks for no reason here.

I think some people are upset that the property tax deduction they used to justify buying a large house has disappeared.  They will now pay less taxes overall but they don't necessarily have to pay the property taxes to get the new, bigger standard deduction.  Their exclusive homeowner advantage is gone. Obviously I am only talking about people who no longer have enough itemized deductions to push them over the standard deduction.

Bolded is false/misleading.  A lot of people are going to pay more in taxes, particularly down the road in ~10 years when the benefits expire to pay for the corporate benefits.  I live in one of those HCOL coastal states getting screwed over by the bill - I'll pay a bit more initially and quite a bit later on, so hell yeah we paid (6 months of) our property tax early, given the tax bill is silent on that point.

And you drank the cool aid if you focus only on the standard deduction and ignore the personal exemption disappearing.  They basically cancel each other out.

Manifestation of the type of homebuyer I referenced in my post.

I will keep drinking this Kool Aid if it means I will be paying ~$2k less in taxes.

[NorCal]

Do the math for yourself.  I'm in CA, and will lose a similar deduction for income taxes (I still rent though).  However, before you freak out, realize that the math is more nuanced than that.  Several considerations:

1. The standard deduction increased significantly.  I don't have the brackets in front of me, but MFJ went from ~$13K - $24K.  So if you don't have other major deductions, your total deductions still went up $10K.
2. Overall tax rates are lowered.
3.  The AMT which likely bit you before (as a Californian) won't be an issue anymore.  As a Californian, my state income tax deduction alone was enough to throw me in the AMT for several thousand dollars.  Without that deduction, the AMT is no longer an issue (if it even survived the final bill; I didn't pay attention).

I did the math for myself based off a prior draft of the bill.  My total taxes would change by less than $200/year, and I'm not even sure which direction.  I haven't done the math on the final bill, but I don't expect major changes.

Don't let people tell you whether this bill is good or bad until you've done the math for yourself.  Most people trying to tell you what to believe can't even do the math for themselves, much less for your personal situation.

[Mr. Green]

The increased deduction really isn't a big change because exemptions are gone. At $4,150 per person, the standard deduction and exemptions come to $21,000. So it went up to $24,000. So it's a 15% increase, not really a doubling.