Author Topic: Anyone Defer Property Taxes to save money?  (Read 2637 times)

Goldielocks

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Anyone Defer Property Taxes to save money?
« on: August 20, 2016, 09:55:30 AM »
A question...
Does anyone defer property taxes to free up cashflow for investing?

It is a suggestion by one financial advisor group here, and it seemed pretty crazy... but maybe not.

Seniors can defer for 0.7% administration fee (no interest)
Families with kids can defer for 2.7% administration fee (no interest).

Deferment is done by a lien on your property, until you pay it off or sell.  It was set up to allow seniors to remain in their homes on a fixed income, even if property taxes escalate around them, but can cause challenges with some banks during refinancing a mortgage.

ender

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Re: Anyone Defer Property Taxes to save money?
« Reply #1 on: August 20, 2016, 09:58:17 AM »
I'm actually planning on the opposite - I can batch pay them (a years worth at once).

This means I can put all the tax deductions into a single year every other year. Basically every other year pay 1.5 years worth and the other only 0.5 years worth.

Goldielocks

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Re: Anyone Defer Property Taxes to save money?
« Reply #2 on: August 20, 2016, 10:00:37 AM »
I'm actually planning on the opposite - I can batch pay them (a years worth at once).

This means I can put all the tax deductions into a single year every other year. Basically every other year pay 1.5 years worth and the other only 0.5 years worth.
Why?

Paul | pdgessler

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Re: Anyone Defer Property Taxes to save money?
« Reply #3 on: August 20, 2016, 10:03:40 AM »
I'm actually planning on the opposite - I can batch pay them (a years worth at once).

This means I can put all the tax deductions into a single year every other year. Basically every other year pay 1.5 years worth and the other only 0.5 years worth.
Why?

I've heard people who are on the edge of it making sense to itemize deductions will do this. Itemize in the year with the big tax bill, then take the standard deduction in the off year.

ender

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Re: Anyone Defer Property Taxes to save money?
« Reply #4 on: August 20, 2016, 10:10:21 AM »
I'm actually planning on the opposite - I can batch pay them (a years worth at once).

This means I can put all the tax deductions into a single year every other year. Basically every other year pay 1.5 years worth and the other only 0.5 years worth.
Why?

All a matter of what your marginal rate is and how much (if at all) you itemize.

wenchsenior

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Re: Anyone Defer Property Taxes to save money?
« Reply #5 on: August 20, 2016, 10:13:16 AM »
I'm actually planning on the opposite - I can batch pay them (a years worth at once).

This means I can put all the tax deductions into a single year every other year. Basically every other year pay 1.5 years worth and the other only 0.5 years worth.
Why?

I've heard people who are on the edge of it making sense to itemize deductions will do this. Itemize in the year with the big tax bill, then take the standard deduction in the off year.

This is what we do in  alternate years to get above the standard deduction. Pay 2014's prop tax in Jan/Feb of 2015, then pay 2015's prop tax in Nov/Dec of 2015. Take SD in 2014 and 2016, itemize in 2015. However, even with two properties and for a while, two mortgages, doubling up on prop taxes and donations (which we also only do in those itemizing years), we will soon not be able to itemize at all except under extraordinary circumstances. Still, it saved us a bit of money over the past 15 years.

Goldielocks

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Re: Anyone Defer Property Taxes to save money?
« Reply #6 on: August 20, 2016, 10:16:18 AM »
Okay,  I get the tax deduction reasons for overpaying...  but for those that don't itemize, or don't have the tax deduction...

Would freeing up $3000 to $8000 per year in cash flow, (paid when the home sells and you have capital), make sense for investing -- if it meant deferring your property taxes with the city?

ender

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Re: Anyone Defer Property Taxes to save money?
« Reply #7 on: August 20, 2016, 10:45:11 AM »
Okay,  I get the tax deduction reasons for overpaying...  but for those that don't itemize, or don't have the tax deduction...

Would freeing up $3000 to $8000 per year in cash flow, (paid when the home sells and you have capital), make sense for investing -- if it meant deferring your property taxes with the city?

Oh, absolutely.

And it might even work out such that if you do so after you RE you could batch the property tax deduction and get a massive jump start on free Roth conversions, too.

Metric Mouse

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Re: Anyone Defer Property Taxes to save money?
« Reply #8 on: August 21, 2016, 07:52:47 PM »
Okay,  I get the tax deduction reasons for overpaying...  but for those that don't itemize, or don't have the tax deduction...

Would freeing up $3000 to $8000 per year in cash flow, (paid when the home sells and you have capital), make sense for investing -- if it meant deferring your property taxes with the city?

Oh, absolutely.

And it might even work out such that if you do so after you RE you could batch the property tax deduction and get a massive jump start on free Roth conversions, too.

Kinda makes me wish my property taxes were high enough for this to make sense...

Goldielocks

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Re: Anyone Defer Property Taxes to save money?
« Reply #9 on: August 24, 2016, 03:06:12 PM »
Okay,  I get the tax deduction reasons for overpaying...  but for those that don't itemize, or don't have the tax deduction...

Would freeing up $3000 to $8000 per year in cash flow, (paid when the home sells and you have capital), make sense for investing -- if it meant deferring your property taxes with the city?

Oh, absolutely.

And it might even work out such that if you do so after you RE you could batch the property tax deduction and get a massive jump start on free Roth conversions, too.

Kinda makes me wish my property taxes were high enough for this to make sense...

That is one thing holding me back - property taxes are only $3k, but others in the metro area are paying $6k to be closer in/ larger home.

The other is the hassle in refinancing a mortgage, and the third is the perceived stigma of it -- It is generally intended for persons with severe financial cash flow challenges, typically a divorce involving kids, or pensioned fixed income senior to stay in their home.

Jack

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Re: Anyone Defer Property Taxes to save money?
« Reply #10 on: August 24, 2016, 03:16:42 PM »
In general, what is the property tax range / income range where that "itemize every other year" makes sense?

ender

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Re: Anyone Defer Property Taxes to save money?
« Reply #11 on: August 24, 2016, 04:55:52 PM »
In general, what is the property tax range / income range where that "itemize every other year" makes sense?

It depends entirely on what your normal deductions are and marginal tax rate between years.

Imagine your non-property tax deductions are $5000 as a married couple and your property taxes are also $5000. If you pay these for two years normally, both years you will be under the standard deduction of $12.4k, so your total deductions will be $24.8k.

However, if you pay the property taxes all in one year, you now get 12.4K+15k = $27.4k worth of deductions.

It basically depends on a lot of factors. But the closer you are to the standard deduction amount the easier and more beneficial this becomes.

HotPotato

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Re: Anyone Defer Property Taxes to save money?
« Reply #12 on: August 25, 2016, 10:49:50 AM »
In general, what is the property tax range / income range where that "itemize every other year" makes sense?

It basically depends on a lot of factors. But the closer you are to the standard deduction amount the easier and more beneficial this becomes.

Do you mean close but not going over? I'm in NY so thankfully our taxes put us over the standard every year. Is this something I should look into anyway?

ender

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Re: Anyone Defer Property Taxes to save money?
« Reply #13 on: August 25, 2016, 11:52:46 AM »
In general, what is the property tax range / income range where that "itemize every other year" makes sense?

It basically depends on a lot of factors. But the closer you are to the standard deduction amount the easier and more beneficial this becomes.

Do you mean close but not going over? I'm in NY so thankfully our taxes put us over the standard every year. Is this something I should look into anyway?

Sure, it depends a lot on how much you can move year to year. You've got to do the math with your situation, though, there's not a universal rule.

If you are single and have $15k in deductions every year and $6k of that is property taxes that you can move year to year, it pays off still to do this (assuming "we're" implies you are married). You could itemize for $21k one year and still get the standard $12.6k deduction (total of $33.6k vs $30k in deductions).