According to CNBC, there is a provision in the bill that prohibits 2017 deductions for pre-paid 2018 property tax bills. Please note that in this article, since it is very misleading as written.
5
if you read the CNBC article more carefully, you'll see that it says the law prohibits pre-paying state and local INCOME taxes, not property taxes. Here's the quote: "The final version of the tax legislation includes a provision that would disallow a deduction in 2017 for any prepayment of 2018 state and local income taxes (otherwise known as SALT)"
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Years ago, I prepaid my mortgage in an attempt to take increased advantage of the interest deduction. This was alleged to be savvy financial advice. Unfortunately Uncle Sam didn't agree then, either.
If you pre-pay your mortgage, the amortization is recalculated and your total interest paid over the life of the loan will be lower.
7
The Middle and upper middle class citizens, who live in New York and California, NJ, an coastal states who have the highest property taxes, home prices and cost of living are going to be hit the hardest by this bill. Not the ultra wealthy, they pay cash for their homes. People who will get hit are people who have mortgages and make less than $150,000, who itemize for high medical expenses, they end up paying the Individual AMT. The tax bill eliminated the Corporate AMT, but kept the Individual AMT. They raised the threshold to $500,000, but it doesn't kick in until 2018. So a family with two children, with a mortgage, paying property taxes of $16,400 a year will get hit. This is Blue state punishment. In Marin, the high property taxes fund excellent public schools, as private schools are the cost of college tuition. This family described above, can't pre-pay takes if the have high medical bills, etc.. They get hit with the AMT. Double hit, then next year, when they pay the same taxes, the deduction is capped at $10,000. So this family loses $6,400 in 2018 and pays the AMT this year. This is a brutal hit and most Americans will have a tax increase. Then if they are forced to sell their home, the homes will be devalued by this tax bill. Only the ultra wealthy benefit from this bill. Voters will be outraged, and lives will be altered, and the strong economies of states like California and New York will suffer. Add rising healthcare costs, and it is a disaster.
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I thought I had a loophole in overpaying estimated state taxes this year, but it's been closed. So, a loophole for the middle class has been closed while loop chasms for the rich have been opened. Merry Christmas.
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An important point is that if you pay the AMT there is zero benefit to prepaying taxes.
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Exactly.
1
We really need to have term limits for senate and congress.
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Some of our biggest champions (i.e., Bernie Sanders) would not be there if we had term limits. Some of our biggest crazies (i.e., the Tea Party election) can start doing damage the minute they arrive.
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I'm all for saving a few bucks here but in the longer run, we will be paying thousands of dollars more and tens of thousands more going into the future.
Not only that, but the real estate market is going to come to a screeching halt in the area.
It has already started to slow as those who had worked out their finances with their mortgage brokers, will have to go back to the drawing board, and will in many cases, have to look at lower priced homes and neighborhoods, or be pushed out of the buying market altogether.
The boomerang effect of this tax debacle will be massive with its "reverse" trickle down effect.
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TIME OUT. Read sec 11042 of the Conference Committee Report ~pages 88 to 90.
The provision is pretty clear: if you prepay state and local INCOME taxes, it will viewed as applied in the year when the tax is due. ergo 2018.
Please read and come to your own conclusions, but applying typical rules of statutory construction... the author may want to revise the original thesis.
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From the author's article: "...in the final bill they prohibited taking a deduction this year if you prepay next year's income taxes." Lieber here seems to be suggesting paying taxes that are for 2017 obligations, but often paid in 2018.
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The article is pretty clear that prepaying 2018 income taxes won't generate savings, but prepaying 2018 property taxes in jurisdictions that allow it will allow you to take the full deduction allowed in 2017.
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The article is legally correct and does not need revision.
2
Marbletown NY can not accept early payment of property taxes.
3
As currently written, the last sentence of this article seems to be simply stating the obvious in a way that confuses. (Why *wouldn’t* I deduct 2017 taxes from my 2017 return?)
All of these tactics point to one thing, This new tax bill is most definitely not a boon for the well off, all it really does is arrange the utensils and dishes on a vast dining room, I would love for the NYT’s to talk to my crusty accountant,
While I am a so called “real estate professional” all it took was a 2hr session with him to show me while I will be saving on the right I’ll be paying the same if not more on the left, This prepayment of Property Tax and overpayment of 4th qtr estimated tax is exactly what he said I could benefit from, this year. Whilst true the Estate Tax is a great help to me I will have to die for my kids to benefit, Remember To AVOID paying tax is encouraged, to EVADE is illegal,
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Maybe you thought you didn’t have to die under the previous estate tax rules for your children to benefit. If the doubling of the estate tax exclusion is actually relevant to you, then it trivializes any timing benefit from timing this year versus next on SALT. And then there is the pass through issue which may or may not be applicable to you. In any case it appears that you are in the class of tax payers that thisbill will handsomely reward. Don’t be so modest.
4
In regard to the estate tax Your lucky they don't tax you for not having a sense of humor nor the inability to detect sarcasm,
As to the other points while I'm not disagreeing with you in regards to being well off my point is that the NYT's highlights different points in the tax code without realizing that most are canceled out, in any case this is not a tax cut for the rich in fact as these many articles and comments attest to it actually raises taxes, I guess shouting tax the rich only works if you considered yourself middle class and from the looks of the commentators most people didn't realize that lo and behold they are rich (by standards of at least 70% of their fellow citizens)
3
I find it reprehensible that the NYT is now offering advice on tax avoidance on its front page. I believe that this advice is predominantly for the top 1%, as 47% do not pay taxes at all and the working class poor and middle class take the standard deduction. I am concerned that the 1% will now use this article for guidance to avoid paying their fair share.
Think of how many Federal social service programs will be starved of funds by the rich taking advantage of these loopholes, at the behest of the NYH, no less. A betrayal of immense proportions.
9
This strategy is peanuts to the 1% who have far bigger fish to fry and enjoy in this bill. It is the middle class homeowner who may have a one time opportunity to avoid some tax liability under a tax bill designed to punish him. But your last thought is true although it isn’t the loopholes which are egregious, it is the entire bill.
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you may not be aware but that %1 has entire accounting firms and advisers working for them. They already know how to get around the tax laws. With this new bill, they just won't have to spent extra time and money to get around them.
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The greatest lie ever told:
"I will simplify the tax system"
Donald J. Trump
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I'll counter with Obama's "If you like your health care plan, you can keep it" line. That one was a doozy,
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Let's do a side by side comparison of Trump lies vs Obama's "lies". I put lies in quotes for Obama because a lie is only a lie, if the person states it as fact, knowing that was not. (I contend that Obama's statement was not in fact a lie, as he was speaking to the vast number of people that had reasonable coverage. I understand that it could have been qualified, but sound bites are not amendable to listing minor exceptions.)
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@Edward
I certainly retained my existing health care plan. All I had to do was to indicate on my tax return that I was already covered. I have no idea why anyone would think that was a big problem.
If your rates went up, it simply meant that your old insurance plan was junk. It's real easy to sell a cheap plan, when you tell everyone who makes a claim, that they have a "pre-existing condition".
Unlike either of the 2016 candidates, there is no evidence that Obama was ever "working for his own pocket". An unbiased person would say that he was working for all of us.
He keep us out of WWIII, he got the economy going again, and he tried to extend help to people who needed it - why do you find that to be so offensive?
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NOT paying will save you money, too.
Just follow the lead of the POTUS, who says that paying nothing in federal taxes makes you "smart."
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Ha...that may help for this year at best.
Republicans -10
Main Stream America - 0
If this bill passes, the upper class wins....for now. Trump and Corker will be out celebrating their new found wealth. Get out and vote next fall.
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There is a difference between the upper class, and the 1%, and it varies by state. I wish the New York Times would clarify this. There is a huge difference between what qualifies as the 1% in New York or California versus Alabama. Most people in the 1% don't take medical deductions, or need mortgages or worry about paying property taxes. They pay with their homes with cash. And they have substantial investments and other income, versus a salary.
https://www.cnbc.com/2017/06/12/how-much-you-have-to-earn-to-be-in-the-t...
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Let's see now, who benefits from the provision to prepay property taxes? Hm...the Republican Congress must have overlooked this loophole.
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CNBC is saying, "The final version of the tax legislation includes a provision that would disallow a deduction in 2017 for any prepayment of 2018 state and local income taxes."
https://www.cnbc.com/2017/12/18/prepaying-2018-state-income-taxes-is-blo...
Which is it?
That is exactly what it says in the article - you can't prepay 2018 income tax.
However, you can:
1. Make your fourth quarter state income tax payment for 2017 before Dec 31
2. Pay property, not income, tax in advance.
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Thanks so much, NYT, for helping us figure out how to beat the system - this year. Get back to us in a few years when this EVIL monstrosity, which will reward your owners mightily, has done it's work to destroy middle class America.
The media is calling this a "victory" for The Con Don.
Yes, merry anti-christ-mas, Donnie. Merry anti-christ-mas also to Rupert Murdoch, the Koch brothers, the Mercers, Sheldon Adelson and all the other Robber Baron dons who bought OUR government.
Merry anti-christ-mas to the pope and catholics around the world. Merry anti-christ-mas Putin, Netanyahu, Erdogan and all the other supposed power-masters who would take over the world through their International Mafia.
Merry anti-christ-mas to mad dog Mattis, the International Mafia American war monger.
Merry anti-christmas to every single U.S. senator/house member who votes for this EVIL BILL.
Get out your black armbands, ladies and gentlemen. If this bill passes life as we have known it since FDR will be dead.
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You are shooting at the wrong target if your point is that this timing strategy “beats the system”. It is an evil bill but why wouldn’t the middle class take advantage of a one time strategy to reduce its punitive effects ?
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Encouraging people to avoid taxes through these loopholes seems wrong to me.
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Surely you jest. The "loopholes" you refer to are all perfectly legal.
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My accountant advised against prepaying property taxes as it triggers AMT for us making us owe almost $6K vs $2K. However we can prepay our mortgage to the same amount as property taxes $13K and even paying interest AMT only increased by less than $100 but overall tax savings is $700. If applied to just principal no AMT triggered. This is the time when good tax advice is key.
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What I found. AMT wipes out the deduction, so no advantage.
I do not see how mortgage interest is relevant, since I thought there was no cap on that.
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"But before you start lining the money up, check with your local taxing authority about whether it allows prepayment — and how much you can actually pay in advance."
Ha! My town is so hard up for money, they will gladly accept any payments you want to make. The clerks at the town hall are eager to take your check, any time you want to stop by.
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Regarding property taxes: If you are likely to use the standard deduction in 2018, but itemize in 2017, should you prepay before 1/1/18?
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Absolutely - this is clearly the best choice of action, assuming you do *not* hit the AMT.
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Property taxes, most likely (we are doing this) but your own situation may be unique so confirm with an accountant. I hate to generalize.
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The article neglected to mention how prepaying quarterly state income taxes or property taxes may affect a taxpayers chances of owing the AMT. How can a taxpayer figure out if prepaying is worth it or not if it does push them over into owing the AMT? Help please from any accountants out there.
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You can do a mock return, using form 6521 from the IRS. You will need accurate estimates of your income and deductions - but you should be able to tell if you'd get hit with the AMT.
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Thank you. I will try that.
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It is pretty easy to set up a mock-AMT model on a spreadsheet. Most of the provisions won't apply to you, so it is much simpler than filling out the form. My AMT spreadsheet is only about 10 lines, all I have to do is plug in the numbers.
Basically, you tax your AGI, add back S&L tax to get your AMT income, then subtract the limit, multiply by .25, subtract that from your allowance, and then subtract the remaining allowance from your AMT adjusted income. If you don't have much in dividends or capital gains, you can just multiply the result by .26 to get your AMT. It's simplified, but it works if your situation is not complicated.
1
Regarding quarterly state income taxes for those making quarterly income tax payments. Seems to me the article may be missing a critical piece of information. If you overpay 2017 income taxes because you want to prepay 2018 taxes and get the deduction on 2017 taxes, that will generate a refund when you file your 2017 state taxes which becomes taxable as income on your 2018 federal taxes.
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My state allows any over payment to be applied to next year's tax liability. If you have a copy of last year's return you can check or of course call your state's tax office.
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True, for many people, any refund you may get for overpayment is likely to be at a lower tax rate. So, it pays here to overpay (but don't be a pig).
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My quick read online suggests that's not true. Is there a tax accountant who can opine?
First, federal income tax refunds are not taxable as income. Second, interest from both the federal and state governments is considered taxable income and should be reported. Finally, state income tax refunds may be taxable, depending on what you deducted on your prior-year tax returns.Sep 5, 2013
Claim Tax Refunds As Income On Tax Return? - Bankrate.com
www.bankrate.com/finance/taxes/claim-tax-refunds-as-income.aspx
2
Pay January 1st mortgage payment in December 2017 and the Interest deduction will count in 2017. Bottom line, this is short term relief for some .Vote in 2018 and change Congress. The real threats to education, Medicare, Social Security, and healthcare are on our doorstep.
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Oh, just take that deduction no matter when you pay your property tax.
The IRS is not going to call you on that.
6
I agree. The chance of the IRS finding these de minemes issues are—- de minemes.