The conference agreement provides that in the case of an individual,171 as a general matter, State, local, and foreign property taxes and State and local sales taxes are allowed as a deduction only when paid or accrued in carrying on a trade or business, or an activity described in section 212 (relating to expenses for the production of income).172 Thus, the provision allows only those deductions for State, local, and foreign property taxes, and sales taxes, that are presently deductible in computing income on an individual’s Schedule C, Schedule E, or Schedule F on such individual’s tax return. Thus, for instance, in the case of property taxes, an individual may deduct such items only if these taxes were imposed on business assets (such as residential rental property).
Under the provision, in the case of an individual, State and local income, war profits, and excess profits taxes are not allowable as a deduction.
The provision contains an exception to the above-stated rule. Under the provision a taxpayer may claim an itemized deduction of up to $10,000 ($5,000 for married taxpayer filing a separate return) for the aggregate of (i) State and local property taxes not paid or accrued in carrying on a trade or business, or an activity described in section 212, and (ii) State and local income, war profits, and excess profits taxes (or sales taxes in lieu of income, etc. taxes) paid or accrued in the taxable year. Foreign real property taxes may not be deducted under this exception.
The above rules apply to taxable years beginning after December 31, 2017, and beginning before January 1, 2026.
The conference agreement also provides that, in the case of an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, the payment shall be treated as paid on the last day of the taxable year for which such tax is so imposed for purposes of applying the provision limiting the dollar amount of the deduction. Thus, under the provision, an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017.
Effective date.−The provision is effective for taxable years beginning after December 31, 2016.
. Our accountant had told me that one can pay up to a year in advance and deduct them. For example the second half of our 2017 tax bill is not due until next May. Our accountant told us that we could pay those this year and deduct. He also said that we could prepay the first half of 2018's taxes which are due next November. I think the provision quoted above makes that no longer allowable.
. Any other thoughts on this topic?
