Property Tax Shifting Bet on New Federal Income Tax Proposal

[Another Reader]

Property taxes in California are due in in two installments, in the Fall and Spring. Currently, they are deductible from income for federal income tax purposes.

In the original proposal, property taxes up to $10,000 would continue to be deductible. From what I read, that may not be the case in the final bill, and the changes will apply to 2018.

I'm thinking about paying the entire amount of the 2017-18 bill in early December. Despite Prop 13, the taxes are not insignificant. Is anyone else considering betting on losing the deduction and shifting the property taxes due in the spring into this year?

 

[audreyh1]

Well, I am in general taking all deductions I can this year including property tax as we have made sizable charitable donation this year. And yes, it's in anticipation of not itemizing in the future.

I would be waiting two years anyway before bunching up deductions again if it were possible to deduct up to $10,000 in property taxes. But I'd half to figure out where the remaining $14K would come from.

Over the past two years including 2017 I have been front loading our Donor Advised Fund with appreciated securities while we have divested some very long held stock that I wanted to get out of by the end of 2017. So we are actually way ahead in terms of (pre-funding) charitable gifting and so will probably not be using the charitable deduction for several years. We will be gifting from the DAF though obviously.

 

[MichaelB]

The only thing I'm betting on is the final bill that is passed into law will be different than one one currently proposed.

Pulling forward and grouping deductions is a time-tested strategy to maximize their value. Nothing unusual about that. Those of us with individual health care policies can also pay the January premium in December.

 

[bingybear]

Property taxes in California are due in in two installments, in the Fall and Spring. Currently, they are deductible from income for federal income tax purposes.

In the original proposal, property taxes up to $10,000 would continue to be deductible. From what I read, that may not be the case in the final bill, and the changes will apply to 2018.

I'm thinking about paying the entire amount of the 2017-18 bill in early December. Despite Prop 13, the taxes are not insignificant. Is anyone else considering betting on losing the deduction and shifting the property taxes due in the spring into this year?

Not sure yet. I paid the bill due for 2017 in early January. I could pay the bill due in 2018 early and have 2 years property tax in 2017. That would put me just below the MFJ standard deduction. I'd have to look at my estimated taxes to see if I can push over the standard deduction.

 

[Another Reader]

The only thing I'm betting on is the final bill that is passed into law will be different than one one currently proposed.

That's why it's a bet.

I haven't done bunching before, so it does not automatically come to mind. It would probably save around $1k in taxes this year and either the deduction goes away next year or the shift continues.

 

[Cobra9777]

As luck would have it, 2017 is already a bunching year for us. We took the standard deduction last year and paid our 2016 property tax in Jan of this year. We'll pay 2017 property tax in Dec. In Texas, property tax is due Dec 31 each year, but no late fee until Jan 31 of the following year. So it's quite easy to bunch. Also, we've made a significant amount of charitable contributions after none last year. I'm even saving receipts to add up our actual sales tax in the hope it exceeds the IRS calculation. It did two years ago, but not by much.

So this is just business as usual for us... not motivated by potential changes in the tax code. Bunching is a good strategy regardless. So if you aren't already bunching, this might be a good year to start, if you can, and if it makes sense for your situation. Doesn't strike me as a high-stakes bet. Even with the proposed higher standard deduction, there's a chance we will still itemize every other year going forward. A lot depends on the $10K cap.

 

[Sunset]

We have been doing it for some years now, bunching up property taxes and donations every second year, since we have no mortgage it's the only way to get above the standard deduction.

This new tax change will make it simpler as we will always take the standard deduction.

 

[foxfirev5]

Like others I was bunching this year already. I'm freeing as much 15% space as I can. Just make the best move based on what you know today.

 

[Scuba]

Interesting idea. Maybe we'll do this. If the property tax deduction ends up being capped at $10K, we'll lose over $4K of deductions. Plus I think our income will be lower in 2018 so might be a higher value deduction in 2017. But I need to ask my CPA ... if we are going to be subject to AMT in 2017 but not 2018, that could change the conclusion. Thanks to the OP for the question.

 

[Freedom56]

I'm paying my tax in full in December to LA County. I always pay my taxes in full in November in Palm Beach county (due in April). The give a 3% discount for paying early. If I can't deduct state taxes in 2018, I can't itemize then the property tax deduction is useless to me. I'll also give double up on my cash donations this year.

Note also that the personal exemption will be gone.

 

[braumeister]

I always pay my taxes in full in November in Palm Beach county (due in April). They give a 3% discount for paying early.

Same dates here, but the difference is 23%. A pretty strong incentive to pay as soon as I get the bill.

 

[Freedom56]

Also if you know that you will owe money to your state in April 2018 with your filing, it would be wise to pay that before the end of the year.

 

[scrabbler1]

I was going to bunch my deductions for 2017 by making my 4th quarter estimated state income tax payment in late December instead of early January. I typically make no estimated state income tax payments until the 4th quarter, so I can essentially bunch 2 calendar year's payments into a single year. That's what enables me to bunch deductions because I am otherwise right around the SD amount.


But something happened a few weeks ago which threw my plan out of whack. Usually, unexpected medical expenses during the year enable me to easily bunch deductions into that year. But I had two such years in a row, in 2015 and 2016. What happened a few weeks ago was the announcement of estimated cap gain distributions for most of my mutual funds including a stock fund I have a large holding in. The amount I will be getting, according to the estimate, will be so huge, so much larger than I had been predicting, that it will reduce my deductible medical expenses by $1,000, enough to make it pay to take the SD in 2017 and bunch in 2018.


Now if the tax reform proposals eliminate state income tax deductions, I may have to redo my plan yet again. Ugh.

 

[target2019]

I established a deadline of mid-December to decide on pre-paying 1/2 of 2018 R.E. tax.

In the 25% tax bracket, it makes a lot of sense.

Looking at some of the taxcasters that have sprung up with the proposed tax changes in place, it still makes sense. I think it is prudent to give it another 30 days, and then make a final decision.

 

[Gill]

I'm paying my tax in full in December to LA County. I always pay my taxes in full in November in Palm Beach county (due in April). The give a 3% discount for paying early. If I can't deduct state taxes in 2018, I can't itemize then the property tax deduction is useless to me. I'll also give double up on my cash donations this year.

Note also that the personal exemption will be gone.

If you're talking Palm Beach County in Florida, that should be a 4% discount in November as it is throughout the state.
Gill

 

[RobbieB]

I've been paying them in full (no installments) for 5 years now. One less check to write, and easier come tax time.

 

[pb4uski]

Same dates here, but the difference is 23%. A pretty strong incentive to pay as soon as I get the bill.

4% discount here... but that is for ~3 3/4 months... which equates to 13%/yr so I pay on the earliest date.

 

[Scuba]

I'm glad I asked my tax guy before doing this - we are subject to AMT so there is no benefit to accelerating our property tax deduction. [emoji30] Thanks for the idea. Maybe we will do this if we ever get into a lower tax bracket or AMT goes away.

 

[audreyh1]

I'm glad I asked my tax guy before doing this - we are subject to AMT so there is no benefit to accelerating our property tax deduction. [emoji30] Thanks for the idea. Maybe we will do this if we ever get into a lower tax bracket or AMT goes away.

It doesn't help if that's the only deduction, but if you have charitable and/or mortgage deductions, those are still allowed under AMT, whereas the standard deduction is completely disallowed. So I find it still usually helps even though property taxes and state taxes are disallowed under AMT.

Plus if your income is high enough such that your charitable deductions are reduced on Schedule A (the Pease amendment that was reinstated in 2014), what is disallowed on Schedule A is allowed back under the AMT rules.

 

[Scuba]

Well, my tax guy plugged in our specific numbers and he said if we accelerated our property taxes, it would decrease our taxes but then increase our AMT by the same amount, so unfortunately in our circumstances, no benefit.

The House bill apparently eliminates AMT so who knows where we will net out next year. We have high property taxes and state income taxes so we may end up paying more even if AMT goes away.

 

[Alan]

After discussion the moderator team has decided that there should be no more threads on tax bills until something has passed both chambers and is in reconciliation.