2017 Tax Planning

The deduction for property taxes is likely to be limited to $10,000 beginning in 2018. To the extent that you already have an assessment that isn’t due until after the first of next year, pay it by December 31. For taxpayers with high property tax bills and other large deductions such as mortgage interest and contributions, accelerating the 2018 property tax payment into 2017 may save a deduction due to disappear next year. Mid-range taxpayers may need a projection to see if this makes sense. And here again, the strategy won’t work for those in AMT in 2017.

Example. Sharon and Vern owe $12,000 in property taxes annually in two installments. They also pay $15,000 mortgage interest and donate $3,000 to charity. If they prepay in 2017 $6,000 property tax due in 2018, their itemized deductions will be $36,000 ($12,000 + $6,000 + $15,000 + $3,000). If they do this for 2018, they will only have $24,000 of deductions, ($6,000 + $15,000 + $3,000) the amount of the new 2018 standard deduction. If they don’t prepay, they will lose the benefit of $2,000 because they can only deduct a maximum of $10,000 property tax in 2018. With prepay, total two-year deductions are $60,000. Without prepay, total two-year deductions are $58,000.

Also, you can prepay the January installment if your mortgage before December 31, 2017 and deduct the interest on your 2017 Income Tax Return.  For 2018 the interest deduction for home mortgages will be limited to the first $750,000 of the mortgage.  So if your mortgage is over $750,000 you will want to take advantage of this provision.  Also, the tax rates will be lower for 2018 so you will get less benefit for the deduction.

For anyone who is interested I have a two-page summary of tax tips for the end of 2017.  Just contact me at my email address and I'll be happy to send it to you.