In California, it is very clear that you can pay your entire fiscal year bill at one time when you are billed in the fall, but it is your option to pay it in two installments that fall in different calendar tax years. I have never heard of a full payment being rejected or refunded. I find it hard to believe that any state would do that, unless the taxes are actually billed in different years, in which case the state might not to keep trsck of credits.
I live in Illinois. We pay our property taxes one year in arrears. In my county, taxes are due June 6 and September 6th.
Even though our taxes are paid in arrears, we deduct when the taxes leave our bank accounts. If I pay a portion of taxes due on June 6, 2018 for tax year 2017 by December 31, 2017, am I allowed to deduct all of the 2016 taxes paid in 2017 + the portion of 2017 taxes due in 2018 that will leave 10K of property taxes? And if I do so, can I still deduct 10K of state income tax AND 10K of property tax?
I’m ever so confused.
I’m just figuring this out, so what you’ll are saying is that if I pay the quarterly taxes that are listed on my property tax site for February 1 and May 1, they will be counted as 2017 taxes and I can deduct them? Just getting up to speed, so want to make sure on this.
If you haven’t experienced strange when dealing with a governmental agency, in my experience you haven’t deal much with governmental agencies. And I work with someone who got a refund from the IRS (of an amount which should have been applied to estimated payments for the following year) when returns for multiple years were submitted at the same time. Again I would suggest checking with your taxing authority before making an early payment. Though it may work fine if you just prepay early without checking. Dealing with governmental agencies a lot over my life, I always ask first if I am doing anything out of the ordinary. They often times do not act rationally.
Let me repeat this, from the Forbes link I posted earlier:
In other words-- although I think the Forbes words are perfectly clear-- you cannot prepay any 2018 taxes in 2017 in order to get more than a $10K deduction for the total of your 2018 taxes.
I dealt with the IRS before. They sent me some letter. I sent back my letter and I was not allowed to inquire about the status if 8 weeks had not passed. There was a time I was unsure about a tax situation. I call them to ask for for explanation but it did not help. The guy who answered my call asked me several questions and finally he just read the entire paragraph of the IRS publication which I already knew. It seems the IRS agents don’t have the authority to interpret the IRS publications. I guess if I call to ask if I can prepay may property tax I would not get a definitive answer unless the law is written clearly in the IRS publication.
yes, but many in this thread seem to disagree.
A simple confirmation first. I understand SALT to mean Property Taxes + State Income tax.
Total of 10K deduction in 2018 that cannot be pre-paid.
Am I all kinds of wrong?
Does any current IRS publication say so?
This Forbes article says “it appears” that you cannot prepay income taxes in 2017 to get over the $10K deductible, but you can prepay property tax. Go figure.
^ What about those whose yearly is less than 10K and will not be itemizingnext year (or any more)? But will be itemizing for 2017? In other words, can I prepay if it’s not to get under the 10K cap?
Since there should be a counterpoint to every point,
@Madison85 - " are deductible if this act is signed into law, then prepaying up to $10k of 2018 state income taxes in 2017 is deductible in 2017 (is how I read it)."
NO. Tax on 2018 income can not be prepaid in 2017 and deducted on the federal 2017 return. However, tax on 2017 income can be prepaid in 2017, even though it is may not be due and payable to the state until 2018. Those of who pay estimated taxes shouldn’t have a problem - it’s just a matter of paying the January installment in December. I can see why it might be confusing for people who only pay when the returns are filed in April – but the return tha you file to your state in 2018 is for the 2017 tax year. The “in order to avoid the dollar limitation” part is an explanation as to the reason for the limitation, not a a qualifier as to how much can be deducted in 2017.
“But the question is can you prepay a 2018 state income tax amount up to $10k in 2017 and deduct it in 2017.”
NO, you can’t. Any amounts that are tied to tax for the 2018 tax year will be treated as if paid in 2018. Whether or not that is getting you around the $10K limitation.
@Dave_N “If I pay a portion of taxes due on June 6, 2018 for tax year 2017 by December 31, 2017, am I allowed to deduct all of the 2016 taxes paid in 2017 + the portion of 2017 taxes due in 2018 that will leave 10K of property taxes?”
Yes, Anything you pay in 2017 that is based on an assessment for 2017 or earlier is deductible on your 2017 federal return.
“And if I do so, can I still deduct 10K of state income tax AND 10K of property tax?”
Assuming passage of the tax bill, in 2018 you will be limited to deducting a combined total of $10K for state income and property tax – not a cumulative total. So $10K total when you file your 2018 return in 2019.
@busdriver11 “I"d be really careful about doing anything differently for this year, lest you mess it up and cost yourself some money”.
Prepaying expenses incurred in 2017 that are not due until 2018 doesn’t really cost money if the funds are available. It’s not as if we are all earning mega-bucks in interest while those funds sit in our bank accounts. This is especially true for the stuff that is due in January anyway— at this point it’s only a matter of making a payment a few weeks earlier.
When I googled “Can I prepay property taxes” I got a different answer. Here is the one pertaining to CA:
http://homeguides.sfgate.com/tax-advantages-paying-property-taxes-before-new-year-39177.html
And this site has a link to IRS publication:
https://pocketsense.com/far-advance-can-pay-property-taxes-10082.html
This is amusing:
Notice how they don’t list any of these supposed reputable economic analyses. Notice also that 2.5% minus 2.1% is not somewhere between 0.5% and 1%.
@“Cardinal Fang” : Just to clarify. People may not be able to prepay INCOME taxes but they can certainly prepay property taxes. I’ve done that for years when I needed to ameliorate the effect of unexpected income, and I see nothing in the tax bill reports that removed that option – especially if your property tax bill spans two calendar years.
@Dave_N : You might or might not be able to deduct the advance 2018 payment, but you CANNOT deduct “10K of state income tax AND 10K of property tax” – from 2018 onward, you can only deduct a total of $10K of income & property taxes COMBINED.
@liveonboca - “Since we don’t have dependent exemptions anymore, is it best for college students to just file their own returns to get the full standard deduction?”
You don’t have an “exemption” any more but you will have a dependent credit of $500 per person.
A “credit” is something that is applied after calculating total tax owed.
So the difference is – in 2017 your college-age dependent is worth a $4050 exemption-- that reduces the amount of your income subjec to tax. If your tax bracket is 28%, then claiming the dependent reduces your 2017 tax bill by $1,134. (More or less depending on tax bracket-- for a low end earner in 10% bracket it would only be $405)
Going forward it is simply -$500 per person. (But these do apparently phase out at higher income levels)
“How will this affect my FAFSA? Anyone have a crystal ball”
FAFSA treats all unmarried undergrads who are under age 24 as dependents, no matter what the actual tax status is. So whether or not you claim the student as a dependent on your tax return won’t impact FAFSA filing requirements.
@sylvan8798 - “can we surmise that they have not made the tax code easier and it is unlikely that I will be able to file on a postcard?”
It is more complicated than ever.
Doubly complicated because it will take a while for the changes to be incorporated into tax software so it will be harder to get a picture of what you’ll owe in 2018 for tax planning purposes. Could be a significant problem for those of us who pay estimated taxes quarterly and don’t want to overpay.
Okay, so if understand the optimal tax strategy might be as follows:
Pay all of my 2018 property taxes before December 3,2017. So in 2017 I effectively deduct two years of property taxes (Have to run a check against AMT)
I’ll still have enough State income tax to deduct the total 10K for 2018.
Thanks for the help getting this through my thick skull.
P.S. I hate phone “keyboards”
@ClassicRockerDad Why do you need to pay off the mortgage?
People planning to Rothify a traditional IRA could do it by 12/31/17 in order to deduct the state income tax if itemizing and not in AMT.