Author Topic: Doubling Up on Property Tax Payments. Anyone else do this?  (Read 16066 times)

Lowerbills

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Doubling Up on Property Tax Payments. Anyone else do this?
« on: November 17, 2014, 01:44:49 PM »
Saw this exchange on the investing forum under a thread debating whether or not to payoff a mortgage early...


"Don't forget that your mortgage interest is tax deductible, so that's another advantage of having the mortgage there."

Biscuitwhomper - "True for many, but not me.    My expenses are not enough to surpass the standard deduction for my family."

In my county, property tax bills come out in October of say 2014, but aren't due until January 31st of the following year (2015).  About 6 years ago, I inadvertently paid the taxes in January at the last minute.  When I was talking to an accountant friend, he informed me that I couldn't deduct those against my 2014 income (duh!)..

BUT, what you can do is "double up" in 2015.  So if your family or individual return has itemized deductions below the standard deduction it could be beneficial to "double up" every other year.  That's what I've done ever since stumbling across this. 

Example.. let's say your property taxes are $5k per year and mortgage interest is $5k per year, and you have no other deductions.  You're below the standard deduction for a family ($12,600 in 2014), so you just take it.  But alternate every other year on the property taxes and every other year you have $15,000 in itemized deductions (two years of property tax at $5k and $5k of interest).  So in this scenario, you'd have $2,400 of extra deductions simply by choosing which month you pay your bill in...

To double up - pay the 2014 property tax bill in January 2015, and pay the 2015 property tax bill in December of 2015.

*** I'm not an accountant, full disclaimer.  Hopefully one that is will chime in.

Granted the numbers and the strategy won't necessarily work for everyone, but for those who pay their taxes on their own (don't escrow them), and are just below the standard deduction, I think it can be of help!

JoJo

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #1 on: November 17, 2014, 02:57:27 PM »
I don't think you can do this.  You are only supposed to deduct property taxes for those incurred that year.

MDM

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #2 on: November 17, 2014, 03:05:36 PM »
You absolutely can do this.  What counts (for property taxes, at least) is the date you paid.

Lowerbills

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #3 on: November 17, 2014, 03:08:52 PM »
Exactly.. Otherwise what happens to the person who pays in 2015 for property taxes incurred in 2014?  The deadline is January 31, 2015.  Doubling up aside, following that logic, anyone who pays in January is unable to deduct property taxes at all.. That doesn't make any sense.


Daisy

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #4 on: November 17, 2014, 08:33:56 PM »
Great minds think alike?

I didn't get much traction on my thread, but there were some good comments there.

http://forum.mrmoneymustache.com/ask-a-mustachian/standard-deduction-games/msg382724/#msg382724

geekette

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #5 on: November 17, 2014, 08:45:00 PM »
Yup.  Pay in January and December one year, not at all the next year, then January and December the third year. 

Per the IRS: you can deduct only those taxes you actually paid during your tax year.

dragoncar

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #6 on: November 18, 2014, 12:57:57 AM »
At the other end of the spectrum, if you are worried about hitting the amt next year, prepay as much as possible this year.  The tax savings likely offset any lost interest

fartface

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #7 on: November 20, 2014, 08:15:16 AM »
Yes you can do this. My mom is a tax accountant and when she and dad paid off their mortgage. They did this very thing. She also did this with charitable contributions. Wrote the church a check in January of 2014 and then again in dec 2014 (to cover her 2015 tithing).

kkbmustang

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #8 on: November 24, 2014, 06:51:57 PM »
Another +1. I'm a tax attorney and concur that you can do this. For cash basis taxpayers, the key date is the date an amount is paid, not the date the liability accrues.

The_path_less_taken

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #9 on: November 24, 2014, 08:28:51 PM »
I've done it and it saved a little.

What I really miss is being able to pay property taxes with credit cards...used to make a bit doing that. And when I lived in Oregon if you prepaid the entire year (instead of installments) they took off a pretty hefty deduction for doing that...and even for paying half I think...can't recall exactly.

Free money: my fave kind!

Rage

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #10 on: November 24, 2014, 11:35:29 PM »
Yes, I do this - double up on property tax payments.  It's a little difficult to do in Colorado, but they release your estimated property tax at the end of the year and allow you to pay that at the end of December.

In the year that I am going to itemize, I also make my Jan mortgage payment on Dec 31st to pull the interest payment into the year I want it in. 

Obviously charitable donations are best saved for itemizing years.

I experimented with having extra state tax withheld too, but when I ran the numbers that didn't save me any money (1040 line 10 - previous year's state tax return winds up treated like regular income on the next years federal taxes).  I imagine it could save you a lot of money if you knew you were going to be in a high tax bracket one year and a lower one the next, though.

TomTX

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #11 on: November 25, 2014, 03:17:07 PM »
I have been doing this for something like 10 years with the property taxes, and somehow didn’t do the January mortgage payment in December until this cycle. Have also been stacking charitable contributions

Rage

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #12 on: November 25, 2014, 03:22:55 PM »
Here's one I've wondered about the property tax thing - last year I paid the property tax on December 31st.  By check, in person, and I made sure to get a receipt.  The check didn't clear for another week, probably because of the holidays.  So did I pay in 2013 or 2014?  Well, I have the receipt so I included it in my 2013 itemized deductions.

MDM

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #13 on: November 25, 2014, 03:41:12 PM »
Here's one I've wondered about the property tax thing - last year I paid the property tax on December 31st.  By check, in person, and I made sure to get a receipt.  The check didn't clear for another week, probably because of the holidays.  So did I pay in 2013 or 2014?  Well, I have the receipt so I included it in my 2013 itemized deductions.
And right you were.

Gerard

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #14 on: November 26, 2014, 03:28:22 PM »
In Canada at least, this strategy is useful for charitable donations. Everything over $250 a year (I think) is refunded at a much higher rate, and you're allowed to stockpile donations for a couple of years and claim them all at once for the bigger rebate.

JoJo

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #15 on: December 04, 2014, 06:44:23 PM »
You had me all excited that I could save about $1000 in federal taxes this year but then I found this:

May I pay next year's property taxes in the current year?
Washington State law (RCW 84.56.010) specifies the collection dates for property taxes and does not allow county treasurers to collect property taxes until the year that they are due.

dragoncar

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #16 on: December 04, 2014, 07:14:32 PM »
You had me all excited that I could save about $1000 in federal taxes this year but then I found this:

May I pay next year's property taxes in the current year?
Washington State law (RCW 84.56.010) specifies the collection dates for property taxes and does not allow county treasurers to collect property taxes until the year that they are due.

Related:  I'm going to pay all my 2014-2015 taxes this year to try and mitigate AMT next year.  But I've only been billed for property taxes based on an assessed value 1/2 the current value.  I haven't yet received a supplemental tax bill, which could take almost a year from my recent home purchase.  Can I prepay some of this expected bill now, given that it will be a bill for taxes incurred during 2014?

MDM

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #17 on: December 04, 2014, 07:22:25 PM »
But I've only been billed for property taxes based on an assessed value 1/2 the current value.
That is not uncommon.  It is exactly how it is done where we live.  Do you know for sure there is another bill to come? 
The tax-collecting entity will likely (unless some unusual state law e.g. Washington's forbids it) be happy to take an early payment.  If you have a receipt from them indicating it is for property tax, that should be good enough for the IRS.

Malaysia41

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #18 on: December 04, 2014, 07:40:05 PM »
I'm doubling up for this year.  2014 is going to be a big tax bill.  So I'm paying my Dec '14 and my Apr '15 bill now.

That's an extra $4708 deduction (tax savings of $1553 woot!)
« Last Edit: December 04, 2014, 07:42:55 PM by Malaysia41 »

Malaysia41

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #19 on: December 04, 2014, 08:48:36 PM »
I'm doubling up for this year.  2014 is going to be a big tax bill.  So I'm paying my Dec '14 and my Apr '15 bill now.

That's an extra $4708 deduction (tax savings of $1553 woot!)

Actually it's a bit of a triple up (well, of half payments).  I paid Apr '14, Dec '14 and Apr '15 taxes all this year. 

Druid

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #20 on: December 04, 2014, 10:55:27 PM »
I can see the whole cash basis argument for the property taxes, but I think charitable contributions have limitations on what you can deduct each year. 30% of AGI for just cash. 50% of AGI if its property and cash. I believe you can carry forward the charitable contributions for a few years, but I don't think you can deduct 60/100% of your AGI by doubling up in a year.

The state tax argument is different because a cash basis taxpayer(99% of individuals) can deduct amounts paid if they receive the benefit in the following year. If an expenditure relates to the following year, it may be deductible in the year paid if(this is verdict of a tax court case):

1)It must not materially distort income..
2)Taxpayer must have a good business reason for making payment currently.
3)Amount must actually be paid.

I think the IRS could argue that you are materially distorting income if you are audited, but since 0.01% of people get audited I doubt anyone should be concerned. Your chances of being audited are even lower if you are not very wealthy.
« Last Edit: December 04, 2014, 11:01:22 PM by Druid »

dragoncar

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #21 on: December 04, 2014, 11:49:59 PM »
But I've only been billed for property taxes based on an assessed value 1/2 the current value.
That is not uncommon.  It is exactly how it is done where we live.  Do you know for sure there is another bill to come? 
The tax-collecting entity will likely (unless some unusual state law e.g. Washington's forbids it) be happy to take an early payment.  If you have a receipt from them indicating it is for property tax, that should be good enough for the IRS.

Yes, I know there's a bill coming.  I'd be thrilled if they never did, but in CA they reassess tax base when you buy a new house.  But they may not actually get around to updating their records until the next year -- they are very slow.  So although I theoretically should pay 2x as much, I only have a bill for 1x.  I expect they will bill the difference next year.

MDM

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #22 on: December 05, 2014, 12:17:18 AM »
But I've only been billed for property taxes based on an assessed value 1/2 the current value.
That is not uncommon.  It is exactly how it is done where we live.  Do you know for sure there is another bill to come? 
The tax-collecting entity will likely (unless some unusual state law e.g. Washington's forbids it) be happy to take an early payment.  If you have a receipt from them indicating it is for property tax, that should be good enough for the IRS.

Yes, I know there's a bill coming.  I'd be thrilled if they never did, but in CA they reassess tax base when you buy a new house.  But they may not actually get around to updating their records until the next year -- they are very slow.  So although I theoretically should pay 2x as much, I only have a bill for 1x.  I expect they will bill the difference next year.
Now (I think) I get it: you bought the house for 2X what the assessed value was - but the assessed value was low only because the law limited the assessment increases to much less than the actual property value increase.  Now you'll get to pay tax on the step increase in assessed value (now equal to what you paid for the house) for whatever fraction of the tax year you owned it.

Still seems it is up to you, regarding federal itemized deductions, whether you go to the county assessor and pay in 2014 or wait until 2015 - do whichever you think will minimize your "2014 plus 2015" federal taxes.

dragoncar

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #23 on: December 05, 2014, 10:33:24 AM »
But I've only been billed for property taxes based on an assessed value 1/2 the current value.
That is not uncommon.  It is exactly how it is done where we live.  Do you know for sure there is another bill to come? 
The tax-collecting entity will likely (unless some unusual state law e.g. Washington's forbids it) be happy to take an early payment.  If you have a receipt from them indicating it is for property tax, that should be good enough for the IRS.

Yes, I know there's a bill coming.  I'd be thrilled if they never did, but in CA they reassess tax base when you buy a new house.  But they may not actually get around to updating their records until the next year -- they are very slow.  So although I theoretically should pay 2x as much, I only have a bill for 1x.  I expect they will bill the difference next year.
Now (I think) I get it: you bought the house for 2X what the assessed value was - but the assessed value was low only because the law limited the assessment increases to much less than the actual property value increase.  Now you'll get to pay tax on the step increase in assessed value (now equal to what you paid for the house) for whatever fraction of the tax year you owned it.

Still seems it is up to you, regarding federal itemized deductions, whether you go to the county assessor and pay in 2014 or wait until 2015 - do whichever you think will minimize your "2014 plus 2015" federal taxes.

Exactly, and thanks for the answer.  I may just prepay ... but maybe if I send a check too big they will not cash it or return the difference.  May be worth a shot, but I guess it'll be a difference of a few hundred dollars in taxes.  After factoring time value of money, may not be beneficial anymore.  Just wish I knew what my investment returns will be next year :-P

kpd905

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #24 on: December 06, 2014, 08:31:12 PM »
I can think of another thing to consider when doing this: 529 plans.  If you contribute to a 529 plan that decreases your state income tax, do that during the year that you don't pay property tax, especially if you won't be able to itemize.  Then don't contribute the next year, leaving your state tax higher to deduct more when you can itemize.

jmusic

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #25 on: December 06, 2014, 09:15:24 PM »
My dad has done this very thing for many years since paying off their house about 8 years ago. No issues that I've ever heard of.  It's especially beneficial in areas where the property taxes have gotten crazy over the last few years.  My parents live in San Antonio, where taxes average $5k/yr on a $200k house.  The lack of income tax is nice though.

sol

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #26 on: December 06, 2014, 09:50:27 PM »
I'm not sure this is going to work for everyone depending on the amounts involved, and I suspect the benefits of doing doing this are also going to depend on the opportunity cost of the payment.  By paying early, you're giving up a year's worth of returns on investing that money.

Example: 

Assume a MFJ couple that makes $50k/year with two kids has $4k in property taxes per year, and can normally itemize their taxes to claim $25k in deductions.

If they double up on their tax payment, then this year they will itemize $29k, saving them $4300 because they're in the 15% bracket, and next year they'll take the standard deduction of $22k saving them $3300.  For a total two year tax savings of $7600.

If they instead pay their property tax every year, then in both years they would itemize $25k and save $3750, for a total two year tax savings $7500.

So at first glance it looks like they can save themselves $100 by bunching deductions.  Except that in order to do so, they have to pay that extra $4k a whole year early, ahead of schedule, and this analysis has thus far ignored the time-adjusted value of money.  If they instead invested that $4k for the year until their next property tax bill came due, they would only have to earn 2.5% after taxes in order to make up the $100. 

If they put that $4k in the stock market for a year, they're likely (but not guaranteed) to make more than that, suggesting that for this hypothetical average family the best plan is to NOT bunch their deductions, and instead put all of their money into their investments as soon as possible.

geekette

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #27 on: December 06, 2014, 10:11:46 PM »
For us, taxes are due late in the year, but not past due until mid January.  So we paid 2013 taxes in January of 2014, and the 2014 taxes in December of 2014.  No opportunity cost at all.

Malaysia41

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #28 on: December 07, 2014, 10:20:44 PM »
We're saving $800-$1000 by paying early. Our 2014 tax bracket is 33%, and I expect our 2015 tax bracket will be 10 or 15% bracket.

Lizzy B.

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #29 on: December 12, 2014, 11:10:49 AM »
We’re going to do this for the first time this year (well, next year.  We’ll pay both 2014 and 2015 property taxes in 2015), after I read a WSJ article a few weeks ago on this very subject.  (Google A Two-Year Plan to Lower Your Taxes to get around the pay wall.) 

Jmusic, we also live in San Antonio,  and you’re right; the property taxes are hefty.  No state income tax, though, so that’s nice.  We’re also going to stagger our charitable donations to push us over the standard deductible.  The property taxes aren’t quite enough to do it on their own.

Bob W

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #30 on: December 12, 2014, 11:29:46 AM »
Like this strategy -- Hate taxes.   So what I did when I purchased my home was to ask for a reduction in taxes.   Just by asking my taxes went from $1,400 to $800ish.   

So ask -- In some instances you may find that your home is valued at 2008 values  and could now be reduced.   It doesn't hurt to ask. 

Each state is likely to have a different method.  But in my county I just called up and they sent a guy over.  He was very nice.  Contacted me 2 weeks later and boom.

On a related front -- at the same time I was only able to find very pricy $250 per month home insurance due to our zone 10 classification. (burn to the ground fire house far away).   

My usual agent suggested I contact a county based mutual insurance company.  I did.  It wasn't even my county.   My insurance is now only 85ish a month.   I had many other quotes from nationwide companies in the 250 range.   

So by doing what amounted to 3 hours work -- We now consistently save around $200 per month. 

Lowerbills

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #31 on: December 14, 2014, 02:24:23 AM »
I'm not sure this is going to work for everyone depending on the amounts involved, and I suspect the benefits of doing doing this are also going to depend on the opportunity cost of the payment.  By paying early, you're giving up a year's worth of returns on investing that money.


If you double up next year for example, you'd pay the 2014 bill when it's due on January 31st, 2015.

Then you pay 2015 taxes on December 31st, 2015.  (One month early as it's due January 31st, 2016.)

Opportunity cost of investing the funds is one month, not a year's worth.

TomTX

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #32 on: December 15, 2014, 10:08:33 AM »

If they put that $4k in the stock market for a year, they're likely (but not guaranteed) to make more than that, suggesting that for this hypothetical average family the best plan is to NOT bunch their deductions, and instead put all of their money into their investments as soon as possible.
First, when I do this I am paying a few weeks early, not a year.

Second,  of course you can construct scenarios where this is not useful. In my case, without stacking,  I could never itemize. My deductions are below the standard deduction.

ManyMountains

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Re: Doubling Up on Property Tax Payments. Anyone else do this?
« Reply #33 on: December 15, 2014, 10:27:36 PM »
Our property taxes are due at the end of November and April, so this would be more of a stretch for us. We'd have to pay April's bill in December, which means we'd have an opportunity cost of five months. Our taxes are $4600 / year. Will have to crunch some numbers to see if it makes sense for us. But thanks too everyone for their info!