Moves due to tax bill passage

[gayl]

Interested in year end moves due to passage. I'll start:

Paying April property taxes 12/29/17 instead of 4/1/18

Future trading in IRA instead of brokerage so I can do 1040A (think Sch D stayed)

 

[Senator]

Waiting until 2018 to do a $65K Roth conversion... I was going to wait until the market corrected a bit, I am still waiting...

 

[walkinwood]

If you are unlikely to exceed the standard deduction next year, bundle charity giving and create/fund a donor advised fund before the end of the year. Use appreciated securities/funds. Take the deduction in 2017.

Time is running out for this move. Check cut-off dates if you haven't already started this process.

 

[Scuba]

Paying our property taxes early would result in a corresponding increase in AMT for us in 2017 so we can’t do anything to help with the SALT limitation next year.

Probably going to pay off our HELOC since that interest will no longer be deductible.

 

[l8_apex]

Probably going to pay off our HELOC since that interest will no longer be deductible.

Can you give me a little detail on this please? I was planning to apply and take out a HELOC in 2018. I hadn't heard of anything in the tax bill that affects the deduction of the interest on HELOCs, but it feels like information overload any time I look at news stories on the tax legislation.

 

[Curmudgeon]

If you are unlikely to exceed the standard deduction next year, bundle charity giving and create/fund a donor advised fund before the end of the year. Use appreciated securities/funds. Take the deduction in 2017.

+1. Recently set up a DAF and funded it for a couple years (planning to do every-other-year charitable bunching), but now that it's unlikely I'll itemize again I'll probably fund it a bit more.

 

[gayl]

Can you give me a little detail on this please? I was planning to apply and take out a HELOC in 2018. I hadn't heard of anything in the tax bill that affects the deduction of the interest on HELOCs, but it feels like information overload any time I look at news stories on the tax legislation.

interest on mortgages & HELOC for acquisition & improvements will be deductible on 750k of loan. Interest on HELOC for debt consolidation won't be

 

[Big_Hitter]

Paying our property taxes early would result in a corresponding increase in AMT for us in 2017 so we can’t do anything to help with the SALT limitation next year.

we are in the same boat

 

[dvalley]

Here's a quick video/article I found on the topic: Tax moves to make before 2018 - Video - Personal Finance

 

[OldShooter]

... Paying April property taxes 12/29/17 instead of 4/1/18 ...

I read that there is an IRS opinion that this won't work.

 

[W2R]

I'm not doing anything, because I never have enough deductions to itemize now that I am retired, mortgage free, in a low SALT state, and with what I regard as low taxes already (7% of my AGI last year). I finally dared to try the calculators for the old vs new taxes. It looks like in my case, my taxes under the new rules will be even lower than that, without doing anything at all, bringing them down to about 5% of AGI. But, we'll see. Anyway, any further reduction is almost venturing into the trivial, and it hardly seems worth the effort to lower my taxes further.

Sure makes life simple for me. Wishing you all some productive tax planning this week and next.

 

[younginvestor2013]

My understanding is that in 2018 you can still itemize/deduct up to $10k in state and local taxes. So unless your RET and state income tax paid will be greater than $10k in 2018, then there is no pressure to pay RET before year-end.

Or am I missing something?

 

[Big_Hitter]

My understanding is that in 2018 you can still itemize/deduct up to $10k in state and local taxes. So unless your RET and state income tax paid will be greater than $10k in 2018, then there is no pressure to pay RET before year-end.

Or am I missing something?

I don't think so - $10K is pretty low if you live in a state that has personal income tax and you own a home

 

[younginvestor2013]

I don't think so - $10K is pretty low if you live in a state that has personal income tax and you own a home

Agreed! I am sure it is easy to hit that figure if you live in areas like Westchester NY or LA, SF, etc. Just wanted to make sure I was understanding correctly.

 

[scrabbler1]

Earlier in the year, my plan was to take the standard deduction in 2017 and do some bunching of deductions in 2018, mainly for state income taxes, the big item I can bunch into one calendar year because I can pay the 4th quarter's estimated state income taxes in either of 2 calendar years. I didn't have any unusually large med expenses in 2017 which, unlike in 2015 and 2016, kept my itemized deductions below the SD when I don't pay the 4th quarter 2017 estimated state income taxes in 2017 but in early 2018 instead.


When the estimated cap gain distributions came out in early November, this bunching plan looked even better because those deductible med expenses fell some (10%-of-AGI exclusion rose when one MF I own planned a huge distribution in late December).


But once the tax reform bill began gaining steam, my plan to bunch deductions into 2018 while taking the SD in 2017 went away. I will now pay my 4th quarter estimated state income taxes in a few days and itemize in 2017 while taking the SD in 2018 (and probably every year thereafter). I also made sure to make my charitable donations this year including a donation of old clothes.


Now if I could only escape the ACA subsidy cliff.......

 

[FIREd]

I'm not doing anything, because I never have enough deductions to itemize now that I am retired, mortgage free, in a low SALT state, and with what I regard as low taxes already

+1.

 

[pb4uski]

...Paying April property taxes 12/29/17 instead of 4/1/18 ...

I read that there is an IRS opinion that this won't work.

Any details OldShooter?

 

[Big_Hitter]

I read that there is an IRS opinion that this won't work.

if you are paying 2017 property taxes in calendar 2017 that aren't "due" until 2018 how can that not be okay?

for example, we pay property taxes in arrears - our 2017 taxes are due in two pieces, half at the end of december and half in 2018

if I pay both pieces today how can I not itemize all of that in the 2017 tax year?

 

[gayl]

My understanding is that in 2018 you can still itemize/deduct up to $10k in state and local taxes. So unless your RET and state income tax paid will be greater than $10k in 2018, then there is no pressure to pay RET before year-end.

Or am I missing something?

with the new SD I won't itemize in the future. My prop tax = 3k + FTB = 5k .... trying to figure out how to do just the 1040A from now on. So 2017 = prop tax 4.5 (3 pymts) + 5k. I read you can pay prop taxes already billed as in past years just not prepay in income taxes

 

[MichaelB]

According to my tax advisor, property taxes can be prepaid as long as the taxing authority is accepting prepayment. In other words, it can’t just be a credit to an account, it must be applied to an assessed or estimated current or future tax liability.

An early payment of a second installment would qualify, as would an early payment when the county has not yet assessed but offers to accept prepayment and apply to the upcoming assessment.

A payment where there is no acknowledgement of forthcoming liability would probably not qualify.

 

[OldShooter]

Any details OldShooter?

Well, I read it in an article a few days ago that seemed authoritative and specifically said there was an IRS opinion that prepayments would not be allowed. So I pushed it out of my mind, hence my post here.

Since I didn't remember where I saw it, though, I just did a Google search and am seeing opinions all over the map. So .... I dunno. Apparently it is settled that you cannot prepay income taxes. I will do some more research as this could be worth several $K to us.

 

[OldShooter]

OK, maybe I got lucky: Try https://www.cnbc.com/2017/12/18/prepaying-2018-state-income-taxes-is-blocked-in-gop-bill.html

At the end it says "(Correction: A previous version of this story incorrectly stated that property taxes could not be prepaid.)"

So that is probably the article I read.

 

[OldShooter]

More: Here is a pdf of the bill: http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT- 466.pdf

IANAL, but beginning Line 20, Page 87 is apparently the language that forecloses prepayment of income taxes:

87
20 For purposes of subparagraph (B), an
21 amount paid in a taxable year beginning before Jan-
22 uary 1, 2018, with respect to a State or local income
23 tax imposed for a taxable year beginning after De-
24 cember 31, 2017, shall be treated as paid on the last

88
1 day of the taxable year for which such tax is so im-
2 posed.’’

Similar language in the conference report on pages 606 and 1083

So ... I guess we will prepay our 2018 property taxes which, coincidentally, are about $10K.

 

[pb4uski]

With respect to income taxes it seems to me to be a gray area.

There seems to be consensus that paying your 2018 state income taxes in 2017 would not be allowed.

From Kitces:

In addition, to prevent households from attempting to maximize their state and local tax deductions in 2017 (before the cap takes effect in 2018), the new rules explicitly stipulate that any 2018 state income taxes paid by the end of 2017 are not deductible in 2017 (and instead will be treated as having been paid at the end of 2018). However, this restriction applies only to the prepayment of income taxes (not to property taxes), and applies only to actual 2018 tax liabilities, which means it is still permissible to pay 4th quarter 2017 estimated taxes by the end of 2017 (and not in early January of 2018) to obtain the 2017 deduction. (And in point of fact, there wasn’t much existing authority to support deducting prepayments of income taxes for a future tax year, anyway.)

Also:https://www.journalofaccountancy.co...g-anticipated-state-income-tax-201718054.html

However, I have estimated state income tax payments that I scheduled long ago based on what I expected to owe but that based on my current view will exceed my state tax obligation. Would this excess be verboten? If so, it would impact my Roth conversion since my itemized deductions would be lower.

I suspect the IRS will take a practical approach to this. If a taxpayer's makes reasonable estimated payments in 2017 then they will be allowed but if they make an oversized estimated payment in December 2017 then all or a portion of it will be denied as an itemized deductions.

So for example, say a taxpayer's state tax bill is usually $4,000 a year and they make 4 $1,000 estimated payments but the actual tax ends up being $3,500. The $500 excess is simply estimated error and legitimately deductible in 2017 and is income in 2018.

OTOH, if under the same fact the taxpayer made a $5,000 estimated payment in December, then at least $4,000 would be disallowed because it was prepayment of 2018 taxes.

 

[OldShooter]

... OTOH, if under the same fact the taxpayer made a $5,000 estimated payment in December, then at least $4,000 would be disallowed because it was prepayment of 2018 taxes.

IIRC for either feds or state, the extra money is considered to be an overpayment and the taxpayer has the option (at filing time) of receiving a refund or applying it to the next year's taxes. So (IANAL) the overpayment is not considered by the recipient to be a payment of future taxes at the time the taxpayer submits the estimated tax payment. The taxpayer makes that election at filing time in the following year and directs the recipient accordingly. IOW, we're screwed.