Should You Prepay Your Property Taxes?

Tax Strategies
Written By gbfadmin

If you live in New York or any other state with "higher" property taxes you should determine whether or not it makes sense to pay your 2018 property taxes prior to December 31, 2017. Why? Tax reform will be capping your state and local tax deductions at $10,000 beginning in 2018. Don't forget though, that it's important to make sure you keep on top of your taxes, as you don't want to cause an issue further down the line.

To prevent taxpayers from navigating around the $10,000 deduction cap that will take effect in 2018, Congress wrote right into the tax bill that taxpayers will not be able to prepay their 2018 state income taxes and take the tax deduction in 2017. However, they left the door open for prepaying your 2018 property taxes in 2017 and taking the deduction in 2017 before the cap goes into effect.

Should you do this? The answer depends on your expected income for the 2017 tax year.

Alternative Minimum Tax

Before you rush down to your town office in the last week of December to prepay your 2018 taxes, if you think your income level in 2017 is going to make you subject to AMT, I will save you the trip. Alternative Minimum Tax (AMT) is a special tax calculation that was implemented back in 1969 to make sure the "wealthy" pay their fair share of taxes. The AMT calculation allows fewer deductions and exemptions than the standard tax system. Taxpayers have to calculate their taxes the "normal way" and then calculate their taxes under the AMT method. Whichever method generates the higher tax liability is the one that you pay.

The problem with AMT is over time they did not index the exemption level adequately for wage inflation since its inception in 1969. Again it was supposed to stop the wealthy from taking advantage of tax deductions. In 2017, the exemptions amounts for AMT are as follows:

Single Filer: $54,300

Married Filing Joint: $84,500

Not exactly what many of us would considered wealthy. It gets better, that exemption begins to phase out at the following levels in 2017 making more of your income subject to the special AMT calculation.

Single Filers: $120,700

Married Filing Joint: $160,900

Why am I going into so much detail amount AMT? Remember, AMT adds back deductions that were previously allowed under the standard calculation. One of those add backs is property taxes. So if your AMT tax liability exceeds your tax liability calculated with the standard formula, there is no point in prepaying your 2018 property taxes because you won't be able to deduct them anyways. Those deductions get added back in as part of the AMT calculation.

Contact Your Accountant

The AMT calculation is complex. If you are not able to accurately estimate whether or not your AMT tax liability will be greater than the standard calculation, you should contact your accountant for guidance.

Those Not Subject To AMT

If you are not subject to AMT and you plan to itemize in 2017, it probably does makes sense to prepay your property taxes for 2018 by December 29, 2017. Otherwise you are just going to lose the deduction in 2018 because it will most likely be more advantageous at that income level to just take the larger standard deduction that will be available in 2018. You end up with the best of both worlds. You get to deduct your 2018 property taxes in 2017 which reduces your income and then capture the large standard deduction in 2018,

How Do You Prepay Your Property Taxes?

So how do you pay your property taxes early? It's most likely going to require your checkbook and a trip to your town office, First, call your town office to make sure the 2018 property tax invoices are available. Once you know that they are available, you should drive down to your town office prior to December 29, 2017 and pay the tax bill.

If you escrow taxes, which many homeowners do, there is a good chance that your mortgage company will not receive your property tax bill in time to issue a check from your escrow account prior to December 29th. For this reason, you should call your mortgage services company and determine what they need to prove that you paid your 2018 property taxes with a personal check. This will hopefully prevent them from issuing a check out of your escrow account for the property taxes that you already paid with your personal check for 2018.

Michael Ruger

About Michael.........

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Related Posts
Why Do Wealthy Families Set Up Foundations and How Do They Work?
Why Do Wealthy Families Set Up Foundations and How Do They Work?

When a business owner sells their business and is looking for a large tax deduction and has charitable intent, a common solution is setting up a private foundation to capture a large tax deduction.  In this video, we will cover how foundations work, what is the minimum funding amount, the tax benefits, how the foundation is funded, and more……. 

The Huge NYS Tax Credit Available For Donations To The SUNY Impact Foundation
The Huge NYS Tax Credit Available For Donations To The SUNY Impact Foundation

There is a little-known, very lucrative New York State Tax Credit that came into existence within the past few years for individuals who wish to make charitable donations to their SUNY college of choice through the SUNY Impact Foundation.  The tax credit is so large that individuals who make a $10,000 donation to the SUNY Impact Foundation can receive a dollar-for-dollar tax credit of $8,500 whether they take the standard deduction or itemize on their tax return. This results in a windfall of cash to pre-selected athletic programs and academic programs by the donor at their SUNY college of choice, with very little true out-of-pocket cost to the donors themselves once the tax credit is factored in.

The Trump Tax Plan for 2025: Social Security, Tips, Overtime, SALT Cap, and more….
The Trump Tax Plan for 2025: Social Security, Tips, Overtime, SALT Cap, and more….

It seems as though the likely outcome of the 2024 presidential elections will be a Trump win, and potentially full control of the Senate and House by the Republicans to complete the “full sweep”.  As I write this article at 6am the day after election day, it looks like Trump will be president, the Senate will be controlled by the Republicans, and the House is too close to call.  If the Republicans complete the full sweep, there is a higher probability that the tax law changes that Trump proposed on his campaign trail will be passed by Congress and signed into law as early as 2025. 

What Is A Donor Advised Fund and How Do They Work for Charitable Contributions?
What Is A Donor Advised Fund and How Do They Work for Charitable Contributions?

Due to changes in the tax laws, fewer individuals are now able to capture a tax deduction for their charitable contributions.   In an effort to recapture the tax deduction, more individuals are setting up Donor Advised Funds at Fidelity and Vanguard to take full advantage of the tax deduction associated with giving to a charity, church, college, or other not-for-profit organizations. 

What Vehicle Expenses Can Self-Employed Individuals Deduct?
What Vehicle Expenses Can Self-Employed Individuals Deduct?

Self-employed individuals have a lot of options when it comes to deducting expenses for their vehicle to offset income from the business.  In this video we are going to review:

1) What vehicle expenses can be deducted: Mileage, insurance, payments, registration, etc.

2) Business Use Percentage

3) Buying vs Leasing a Car Deduction Options

4) Mileage Deduction Calculation

5) How Depreciation and Bonus Depreciation Works

6) Depreciation recapture tax trap

7) Can you buy a Ferreri through the business and deduct it? (luxury cars)

8) Tax impact if you get into an accident and total the vehicle 

Focusing On Buying Dividend Paying Stocks Is A Mistake
Focusing On Buying Dividend Paying Stocks Is A Mistake

Picking the right stocks to invest in is not an easy process but all too often I see retail investors make the mistake of narrowing their investment research to just stocks that pay dividends.   This is a common mistake that investors make and, in this article, we are going to cover the total return approach versus the dividend payor approach to investing. 

What Is an ETF & Why Have They Surpassed Mutual Funds in Popularity?
What Is an ETF & Why Have They Surpassed Mutual Funds in Popularity?

There is a sea change happening in the investment industry where the inflows into ETF’s are rapidly outpacing the inflows into mutual funds.  When comparing ETFs to mutual funds, ETFs sometimes offer more tax efficiency, trade flexibility, a wider array of investment strategies, and in certain cases lower trading costs and expense ratios which has led to their rise in popularity among investors.  But there are also some risks associated with ETFs that not all investors are aware of……..

When Should High-Income Earners Max Out Their Roth 401(k) Instead of Pre-tax 401(k)?
When Should High-Income Earners Max Out Their Roth 401(k) Instead of Pre-tax 401(k)?

While pre-tax contributions are typically the 401(k) contribution of choice for most high-income earners, there are a few situations where individuals with big incomes should make their deferrals contribution all in Roth dollars and forgo the immediate tax deduction.

2023 RMDs Waived for Non-spouse Beneficiaries Subject To The 10-Year Rule
2023 RMDs Waived for Non-spouse Beneficiaries Subject To The 10-Year Rule

There has been a lot of confusion surrounding the required minimum distribution (RMD) rules for non-spouse, beneficiaries that inherited IRAs and 401(k) accounts subject to the new 10 Year Rule. This has left many non-spouse beneficiaries questioning whether or not they are required to take an RMD from their inherited retirement account prior to December 31, 2023. Here is the timeline of events leading up to that answer

Requesting FICA Tax Refunds For W2 Employees With Multiple Employers
Requesting FICA Tax Refunds For W2 Employees With Multiple Employers

If you are a W2 employee who makes over $160,200 per year and you have multiple employers or you switched jobs during the year, or you have both a W2 job and a self-employment gig, your employer(s) may be withholding too much FICA tax from your wages and you may be due a refund of those FICA tax overpayments. Requesting a FICA tax refund requires action on your part and an understanding of how the FICA tax is calculated.

Top 10 Things To Know About Filing A Tax Extension
Top 10 Things To Know About Filing A Tax Extension

Are you considering filing for a tax extension? It can be a great way to give yourself more time to organize your financial documents and ensure that the information on your return is accurate. But before you file the extension, here are a few things you should know.

The New PTET Tax Deduction for Business Owners
The New PTET Tax Deduction for Business Owners

The PTET (pass-through entity tax) is a deduction that allows business owners to get around the $10,000 SALT cap that was put in place back in 2017. The PTET allows the business entity to pay the state tax liability on behalf of the business owner and then take a deduction for that expense.

401(K) Cash Distributions: Understanding The Taxes & Penalties
401(K) Cash Distributions: Understanding The Taxes & Penalties

When an employee unexpectedly loses their job and needs access to cash to continue to pay their bills, it’s not uncommon for them to elect a cash distribution from their 401(K) account. Still, they may regret that decision when the tax bill shows up the following year and then they owe thousands of dollars to the IRS in taxes and penalties that they don’t have.

$7,500 EV Tax Credit: Use It or Lose It
$7,500 EV Tax Credit: Use It or Lose It

Claiming the $7,500 tax credit for buying an EV (electric vehicle) or hybrid vehicle may not be as easy as you think. First, it’s a “use it or lose it credit” meaning if you do not have a federal tax liability of at least $7,500 in the year that you buy your electric vehicle, you cannot claim the full $7,500 credit and it does not carryforward to future tax years.

Can You Contribute To An IRA & 401(k) In The Same Year?
Can You Contribute To An IRA & 401(k) In The Same Year?

There are income limits that can prevent you from taking a tax deduction for contributions to a Traditional IRA if you or your spouse are covered by a 401(k) but even if you can’t deduct the contribution to the IRA, there are tax strategies that you should consider

Kiddie Tax & Other Pitfalls When Gifting Assets To Your Kids
Kiddie Tax & Other Pitfalls When Gifting Assets To Your Kids

Before you gift assets to your children make sure you fully understand the Kiddie Tax rule and other pitfalls associated with making gift to your children……….

How To Pay 0% Tax On Capital Gains Income
How To Pay 0% Tax On Capital Gains Income

When you sell a stock, mutual fund, investment property, or a business, if you have made money on that investment, the IRS is kindly waiting for a piece of that gain in the form of capital gains tax. Capital gains are taxed differently than the ordinary income that you received via your paycheck or pass-through income from your business. Unlike ordinary

Roth Conversions In Retirement
Roth Conversions In Retirement
Paying Tax On Inheritance?
Paying Tax On Inheritance?
Retirement Account Withdrawal Strategies
Retirement Account Withdrawal Strategies

The order in which you take distributions from your retirement accounts absolutely matters in retirement. If you don’t have a formal withdraw strategy it could end up costing you in more ways than one. Click to read more on how this can effect you.

Estimated Tax Payments Still Due April 15th
Estimated Tax Payments Still Due April 15th

The IRS extended the tax filing deadline for 2020 from April 15th to May 15th. Click to read more on the questions that we are getting from business owners, retirees, and individuals taxpayers.

COVID-19 Distribution Tax Forms!!!
COVID-19 Distribution Tax Forms!!!

If you took a COVID distribution from a retirement account, IRA, 401(K), in 2020, you will have to report it on your taxes. Here are the special tax forms that you will need to report your COVID distribution. DISCLOSURE: This is for…

At What Age Does A Child Have To File A Tax Return?
At What Age Does A Child Have To File A Tax Return?

When your children begin working and they receive their first W2, the question from parents is often “Do they have to file a tax return?” In this video we will cover

Will Moving From New York to Florida In Retirement Save You Taxes?
Will Moving From New York to Florida In Retirement Save You Taxes?

I am getting the question much more frequently from clients - "When I retire, does it make sense from a tax standpoint to change my residency from New York to Florida?". When I explain how the taxes work

When You Make Cash Gifts To Your Children, Who Pays The Tax?
When You Make Cash Gifts To Your Children, Who Pays The Tax?

A very common question that we frequently receive from clients is “If I want to make a cash gift to my kids, do I have to pay gift taxes?” The answer to that question depends on number of items such as: The amount of the gift

Do I Have to Pay Tax When I Sell My House?
Do I Have to Pay Tax When I Sell My House?

When you sell your primary residence, and meet certain requirements, you may be able to exclude all or a portion of your capital gain in the property from taxes. In this article, I am going to cover the $250,000

Coronavirus RMD Relief: Ability To Waive Mandatory IRA Distributions In 2020
Coronavirus RMD Relief: Ability To Waive Mandatory IRA Distributions In 2020

Congress passed the CARES Act in March 2020 which provides individuals with IRA, 401(k), and other employer sponsored retirement accounts, the option to waive their required minimum distribution (RMD) for the 2020 tax year.

$5,000 Penalty Free Distribution From An IRA or 401(k) After The Birth Of A Child or Adoption
$5,000 Penalty Free Distribution From An IRA or 401(k) After The Birth Of A Child or Adoption

New parents have even more to be excited about in 2020. On December 19, 2019, Congress passed the SECURE Act, which now allows parents to withdraw up to $5,000 out of their IRA’s or 401(k) plans following the birth of their child

Understanding Required Minimum Distributions & Advanced Tax Strategies For RMD's
Understanding Required Minimum Distributions & Advanced Tax Strategies For RMD's

A required minimum distribution (RMD) is the amount that the IRS requires you to take out of your retirement account each year when you hit a certain age or when you inherit a retirement account from someone else. It’s important to plan tax-wise for these distributions because they can substantially increase your tax liability in a given year;

Do I Have To Pay Tax On A House That I Inherited?
Do I Have To Pay Tax On A House That I Inherited?

The tax rules are different depending on the type of assets that you inherit. If you inherit a house, you may or may not have a tax liability when you go to sell it. This will largely depend on whose name was on the deed when the house was passed to you. There are also special exceptions that come into play if the house is owned by a trust, or if it was gifted

gbfadmin
Previous

How Pass-Through Income Will Be Taxed For Small Business Owners
Next

Tax Reform: Summary Of The Changes