Deferring property taxes: poll

[karluk]

Since there is no "it depends" option in your poll, I voted in favor of deferring property taxes. You would be paying only 1% interest on the deferred payments, so to me the critical issue is whether you can get more than 1% on the amount you are deferring. Even in today's ultra low interest rate environment, there are a few federally insured investments that yield over 1% with no risk of loss of principal.

If I were doing this, I would include in my balance sheet two new items - one for the the amount of the deferred tax debt and the other for the offsetting investment. When and if the investment starts yielding less than the interest rate on the debt, I would pay it off and walk away with an anticipated small profit.

Naturally there are complicating factors, such as tax considerations, that may sway the advantage in favor of paying the property taxes immediately. I would run various scenarios in a spreadsheet and see which one left me in the best financial position.

 

[arky]

I know the amounts are small and that is the only reason I might decide to just go ahead and pay it but logically just extrapilate it out and talk in millions instead of thousands ....

If the tax payment was $1.67 mil a year then the 1% interest charged to defer is $167,000 BUT because you had a safe investment that would return +2% then you would make at least $334,000 by deferring it -- well of course it would seem very clear to me at that point to defer, yes?

I wish my CDs would use this math !!!

 

[militaryman]

I wish my CDs would use this math !!!

ok, but same idea holds true -- dropped the extra zero

If the tax payment was $1.67 mil a year then the 1% interest charged to defer is $16,700 BUT because you had a safe investment that would return +2% then you would make at least $33,400 by deferring it -- well of course it would seem very clear to me at that point to defer, yes?

 

[Svensk Anga]

I voted yes because the situation looks similar to mine and I would take the option. I will be trying to stretch my taxable account to last from RE to age 70 when SS and RMD start. No property tax payment for that stretch would help a lot. Once SS and RMD's start, there should be plenty of income to pay those old tax bills.

What I might have spent on property taxes in this stretch could cover the income taxes on more Roth conversions. In my case, I will try to convert all I can within the 15% bracket to avoid the 25% bracket later when RMD's start.

This might not be viable if you have any idea that you might need a reverse mortgage down the road to cover expenses.

 

[Meadbh]

The poll is now closed and 81% of respondents voted No. Having read everyone's response and considered the logic behind it, I found the discussion very helpful. I have decided that the magnitude of the benefit is outweighed by the long term risk, and the fact that I would effectively have a lien on my property. I'll pay the property taxes, dammit!

Mods, please close the thread to further posts as I think it has served its purpose. Thanks to everyone who gave the benefit of their experience.