That’s weird, seems like FL would be the same as WA, how could it be different? Hmm…
Yeah, I know I wasn’t clear. WA is the wrong state to die in, the right state to live in. I guess you can’t have it all!
Maybe it’s because the property taxes are a little bit higher in WA vs FL? I know it definitely is in TX, which is another state with 0 state income tax.
My son and I have comparable homes and I believe his property tax is @2k more than ours.
Property taxes are rather high in WA, but I don’t know why that would affect the calculator if you put in the same number. Weird.
Good point.
I have to laugh at Montgomery County MD. They have now reversed course - again - and will now allow the prepayment of 2018 property taxes. But - the county office that receives the payments has nothing in place and no idea when they will have it set up. By Friday seems iffy. DC, and other MD counties and northern Virginia counties had this worked out last week.
Its not clear to me that prepaying next years state income or property taxes will do any good. The following language is in the bill with regard to the $10,000 limit on deductibility.
My read of that is that prepaying 2018 taxes doesn’t work. I suppose it depends on your appetite for an audit.
I did find something that should be of note, in a bulletin from a large accounting firm. If you pay estimated taxes for your federal and state income taxes, the last installment is due mid-January. You should send the state tax part of that before the end of the year so that you can deduct it this year. Otherwise it will be subject to the 10k cap on deductibility if you actually pay it in January. Depending on how large your payments are, that could be worth hundreds of dollars to you, or even more. This is workable because January’s estimated tax payment is actually for 2017, and not for the 2018 year, which is why it isn’t picked up under the language quoted above.
Link to text of the bill:
https://www.congress.gov/bill/115th-congress/house-bill/1/text
The section that you quoted pertains to income taxes, not property taxes, no?
I own two businesses - one service based and one real estate. It makes sense to me to pay all property taxes this year in addition to paying all other annual expenses I can -such as accounting fees, insurance, postage. Does anyone see a downside to this plan or have ideas of what else to “prepay” this year so I hopefully push taxable income into next year at more favorable rates?
ETA: Service based business files as an S corp and real estate is an LLC
I planning on living in Washington until I’m close to death and then relocating for estate tax purposes.
The heading under which the quoted section appears is shown above. I think it applies to state income and local property taxes. It seems clear to me, and it is consistent with some news reports that the writers of the bill had included language to make prepaying 2018 taxes in 2017 not available.
The sentence preceding the one I quoted in the prior post above also notes that the 10k cap on deductible state and local taxes doesn’t apply to businesses.
Sherpa, as one estate attorney joked, “it pays off to work in WA, shop in OR, and die in CA.” 
Laws don’t work that way.It’s not the headng that counts, but the text of the law. The section you quoted applies to income tax only. You can’t read a provision that says “income tax” and apply it to “property” tax.
In any case, the heading “STATE AND LOCAL, ETC. TAXES” doesn’t necessarily include property taxes… it is broad, but also non-specific – it can easily be interpreted as meaning “some” state and local taxes, rather than “all” state and local taxes.
So that leaves an open question legally as to whether property tax can be prepaid.
That could be an unintentional omission in the new tax law, but it could also represent a deliberae choice to treat state income tax separately than property tax. It could be related to the way the taxes are collected. Property taxes are imposed by the government agency (such as county assessor’s office) determining the amount owed and sending a bill to the property owner. Income taxes are collected by the taxpayer self reporting their income through a return, and many higher income individuals pay their taxes quarterly. Because the state has no idea what is actually owed until a tax return is filed, they simply accept and retain quarterlies without question. So it is possible for someone who knows that they will owe $8000 in state income tax in 2017 and who pays quarterly to prepay the entire 2018 income tax – for example, sending ina final quarterly tax payment of $10K ($2000 for the final quarterly due for 2017, and another $8000 for the whole of 2018). Later, when they file their income tax return for 2017, they are owed a refund, but they check the box on the return directing the state tax board to apply the overpayment to 2018 taxes.
So now they have an $16000 deduction for 2017 and no tax owed for 2018 (because it was prepaid) – and no tax refund either, because of their election.
It doesn’t work the same way with property tax, because generally the county agencies won’t accept payments in amounts that don’t match what they are currently owed – they will just refund overpayments. So much more difficult to game the system there – as the discussion on this thread illustrates, taxpayers really need local agencies to change their practices to make it work.
So it may simply be that the drafters of the new tax law considered state income taxes as a possible loophole needing to be proactively closes, whereas they didn’t perceive the need to address issues concerning property taxes.
Well, Montgomery County, MD is now accepting the 2018 property tax prepayment - mail in a check postmarked by 12/31 for the exact amount of the 2017 tax bill (since 2018 bill does not come out until July 1) with a signed Intent to Prepay form stating there is no guarantee the IRS will allow this and no refunds forthcoming until after the 2018 bill is available. I don’t know…this feels very rushed. I wish I had more time to decide. I did not expect it would be the whole $6000 bill by check or nothing.
I see the argument that it doesn’t apply to prepaying property taxes this year. I suppose there isn’t much to lose by prepaying them and seeing what happens. Not a lot to lose, and a fair amount to gain if it works.
Doesn’t it all added back in calculating AMT? Or are you all the lucky people who don’t have to deal with AMT?
@threebeans - I think your businesses will be able to deduct full SALT, so if that is true, you can just wait until 2018 to pay. Maybe @calmom knows, or shoot a quick email to your accountant.
We have never been subject to AMT in the past. Our state taxes have gone down because I only pay on 75%of my pension now.
Hoping we don’t have an AMT issue.
If SALT has been deducted in the past as a business expense – nothing changes under the new law. The new law only restricts the schedule A deduction.
Sometime these expenses are split between home & business – for example, where the person is running a business from their home and taking a home office deduction. So, for example if the square footage of the home office is 20% of the home, and property taxes are $10K – that person may be able to write of $2000 as a business expense, and deduct the remaining $8000 from the schedule A. If the is a gross-receipts tax on the business – that would be a business expense - not subject to the restrictions under the new law. Business expense are going to be accounted for on different tax schedules – such as a schedule C, a K1 partnership return, or a corporate tax return.
And people who are subject to AMT would not benefit from trying to prepay 2018 taxes – that group is getting a benefit for 2018 because the AMT threshold is being raised, so they may be moving from a -0- SALT deduction (under AMT), to the possibility of itemizing and including $10K of SALT once they no longer are facing AMT.
“with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed.”
I know this is for income taxes, but if it WERE for real property taxes, it might still be okay. You’d have to know if the taxes imposed were for 2017 (paid in arrears) or 2018 (paid in advance). Most states assess real property taxes in arrears, so you ARE paying taxes that would be due as of 12/31/17. For example, in Colorado you pay taxes in Feb and May, but they are taxes that are for the prior year; if you paid taxes on 12/30/17, you are paying for taxes assessed in 2017, which is allowed under the law.
I’ve seen several news stories today that said it isn’t automatically a good thing to pay in 2017 and to seek tax advice if you think it will make a bid difference.
Downloaded the preview of my tax software for 2017 and entered some preliminary numbers.
As expected, we are paying AMT this year, so playing games with prepaying taxes or making sure tax payments are made by the end of the year does not change our tax bill by one penny.
Before going to all this trouble, make sure you aren’t already in AMT territory, or check if making these payments will put you into AMT.