Year End Tax Planning - Property Taxes

[MnWolf]

I guess everything is still in flux, but according to this article
http://www.businessinsider.com/prepay-property-taxes-before-trump-tax-plan-passes-2017-12
it can be to your advantage to pre-pay property taxes (but not income taxes)

Example: A married couple currently itemizes deductions, with a total of about $18,000. Next year, with the standard deduction rising to $24,000 (or so), that couple will not be itemizing. I believe that it makes sense for them to pay property taxes for 2018 this year (if possible) when it they can take the extra deduction. Does this make sense?

 

[GetawaysRus]

Because the SALT deduction may be limited to 10K, and my mortgage is paid off, it is unlikely that I will be able to itemize in 2018. So I am going to prepay the second installment of my 2017 property tax now rather than wait until April. Also, I am going to pay my 4th quarter state estimated tax now rather than wait until mid-January.

BUT I have no plans to go further than that. I have no plans to prepay 2018 taxes. I have read (rumor) that the Congress may put a line into the tax bill disallowing deduction of 2018 taxes in 2017.

I don't see anything that would stop you from making a small overpayment of your 4th quarter state estimated tax.

The tax bill creates an odd dilemma. I will probably be unable to deduct my state income tax in 2018, but I wonder if the Feds will want to levy Federal tax on any state refund I get. In the past, state income tax refunds counted as income in the current year. Does anyone know? It would seem grossly unfair if the rules prevent deducting state income tax but any refund of state income tax added to your taxable income.

 

[MnWolf]

In Other Year End Tax Planning News:

Usually I just pass over these articles, but here's another interesting one

from https://www.kitces.com/blog/final-gop-tax-plan-summary-tcja-2017-individual-tax-brackets-pass-through-strategies/

– Alimony Treatment Is Reversed. Under existing law, alimony payments are deductible to the individual paying the alimony (usually higher income), and reported as taxable income to the alimony recipient (usually lower income), unless the divorce decree or separation agreement stipulated otherwise. Under the TCJA legislation, alimony payments would no longer be deductible by payors, nor reportable by recipients, effectively eliminating the tax bracket arbitrage between the two. However, this provision will only apply to divorce agreements after December 31st of 2018 (or for prior agreements that are explicitly modified to adopt this provision in 2019 and beyond).​

It looks to me like that means there can be a huge tax advantage to finalizing a divorce within the next 12 days.

 

[Matt]

The way I looked at it, it seems that prepaying income tax for 2018 is already disallowed within the tax bill, but property tax wasn't mentioned.

A caveat with prepaying property tax is that sending it into Escrow with your authority does not qualify as a deduction.

 

[Weezl]

I guess everything is still in flux, but according to this article
http://www.businessinsider.com/prepay-property-taxes-before-trump-tax-plan-passes-2017-12
it can be to your advantage to pre-pay property taxes (but not income taxes)

Example: A married couple currently itemizes deductions, with a total of about $18,000. Next year, with the standard deduction rising to $24,000 (or so), that couple will not be itemizing. I believe that it makes sense for them to pay property taxes for 2018 this year (if possible) when it they can take the extra deduction. Does this make sense?

What if one's itemizing exceeds $24k? Won't there still be a cap on local (property) taxes such that it makes sense to pre-pay in 2017 almost regardless of what the increase in std deduction is?

 

[redbirdsj]

What if one's itemizing exceeds $24k? Won't there still be a cap on local (property) taxes such that it makes sense to pre-pay in 2017 almost regardless of what the increase in std deduction is?

Yes - cap on itemized SALT (including property) will be $10k. If itemizing this year and not next, also think about prefunding 2018's charitable contributions. I opened a donor advised fund at Fidelity for this purpose and contributed appreciated stock (effectively allowing be to reset by basis in that stock by buying the stock back with an equivalent amount of cash).

 

[Weezl]

Yes - cap on itemized SALT (including property) will be $10k. If itemizing this year and not next, also think about prefunding 2018's charitable contributions. I opened a donor advised fund at Fidelity for this purpose and contributed appreciated stock (effectively allowing be to reset by basis in that stock by buying the stock back with an equivalent amount of cash).

Wait, you can contribute to this fund with non retirement stock investments that have large gains and not ever pay taxes on those gains, just pay the income taxes after you withdraw the amount during retirement ?

 

[redbirdsj]

Wait, you can contribute to this fund with non retirement stock investments that have large gains and not ever pay taxes on those gains, just pay the income taxes after you withdraw the amount during retirement ?

This is not a retirement account. It's a charity fund that makes donations based on your advice. You can contribute to it with appreciated investments and take the full deduction without paying taxes on your gains. The deduction is available at the time of contribution, while the donation (from the fund) can be made at any time after the contribution.

 

[Refirybo]

Yes, it makes sense to pre-pay property taxes before the new tax plan takes effect if you can itemize deductions this year but won't next year due to the higher standard deduction.

 

[jerryjerry]

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