Doubling up on property tax

[utrecht]

I was wondering whether its better to pay property tax every year and get a write off every year, or to pay it for two years every other year and get no write off one year but a large write off the second year.

In other words, since I paid last years property tax in Dec 2009, is there any advantage to not paying this December and paying 2010 taxes in January 2011 and then paying 2011 taxes in December 2011. I would get no write off this year but a large one in 2011.

I went back and looked at my 2009 TurboTax. I owed $792 after filing last year's returns. I changed 2009 property tax line to zero and it showed that I would've owed $1342. Then I changed the property tax line to double what it really was and I wouldve gotten a refund of $295.

So is it this simple?

Pay property tax each year:
2009- I owe $792
2010- I owe $792
Total $1584

Pay property tax every other year
2009- I owe $1342
2010- I get a $295 refund
Total $1047

Savings of $537 every 2 years.

I assume that it has to do with pushing me further over the standard deduction and making more of my itemized deductions actually worth something? Does this sound correct?

 

[LOL!]

It may be better to bunch deductions into alternating years. Only you can decide. A caveat though is to watch out for AMT gotchas.

Based on your numbers, it is that simple. Don't forget to bunch charitable contributions the same way. Charities do not care if you give them money in December 2010 or January 2011.

One year, my spouse did not pay the prop taxes on time, so we had to bunch. Unfortunately, doubling up prop taxes created an AMT hit that was solved by paying only half the prop tax bill. So rather than bunch (0X, 2X, 1X) over 3 years, we bunched (0X, 1.5X, 1.5X) to avoid the AMT.

 

[ERD50]

It's probably minor, but consider the time value of the money you spend early. And it might only be 6 months early if you have to pay mid-year.

Some people would say, "I'm only getting 1/2% (or whatever) on my money anyhow", but I don't think that's the right way to look at it. The way I see it, if you keep your liquid dollar amount the same, you are really pulling the money from long term investments. So I think of what I expect to get long term while making these decisions ( ~ 4% real, 7% nominal).

-ERD50

 

[LOL!]

@ERD50, the reason to bunch has nothing to do with what you earn on the money as the interest you earn between Dec 27, 2010 and January 4, 2011 is less than 1 cent. You are not spending 6 months apart; you are spending one week apart.

The reason to bunch is to use the standard deduction in say even years and to itemize in odd years. This could save hundreds or even thousands of dollars on your taxes --- if you are on the cusp of itemizing or not. If you itemize every year no matter what, then bunching doesn't help unless your income varies quite a bit year-to-year as well.

 

[ERD50]

@ERD50, the reason to bunch has nothing to do with what you earn on the money as the interest you earn between Dec 27, 2010 and January 4, 2011 is less than 1 cent. You are not spending 6 months apart; you are spending one week apart.

Doesn't it depend when your tax bill is due? Mine is due in two installments, July & Sept. So if I pay early, DEC 27th, I'm out the money until July/Sept. Still probably minuscule, but it is a consideration, just to be technically complete.

-ERD50

 

[Hershey102]

Our community may be the exception because they offer a 2% discount if paid by a date in early December, the full amount if paid by the due date later that month, and penalties thereafter.

 

[utrecht]

I can collect an extra month of interest on my property tax amount of about $4500 by waiting to pay until the due date of 1/31/11. Doubling up would cost me the extra interest I would not get to collect on the extra income tax ($550) I would have to pay this year.

In this case, the value of money of doubling up would cost me about $10. But I would also be paying $1087 less in tax next year. That $1087 would collect interest all of the following year so in total, I would come out ahead if I include the "value of money" in the total calculations. Not much to even worry about though.

 

[MichaelB]

I assume that it has to do with pushing me further over the standard deduction and making more of my itemized deductions actually worth something? Does this sound correct?

Yes, if your itemized deductions without property tax are less than the standard deduction.

It also has to do with the marginal tax rate you are paying. If it does not change from year to year, bunching your deductions will save you money.

 

[ziggy29]

I used to do this when I had enough deductions to allow me to alternate between the standard deductions and Schedule A every other year. These days I don't have enough deductions for it to matter, living in a small, low-value home and having no mortgage interest.

 

[Texas Proud]

It is a savings if you bunch... and as others have said, you can bunch other deductions...


The other thing you can do is take some short term gains on those years as they do not push you up into the next tax bracket... this might be a bit harder to plan and do.... but a strategy... (I do not even try this one)...