Prepaying property tax

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Man o War

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Has anyone who escrows property tax been able to prepay 2018 property tax so the deduction can be taken for 2017 ahead of the new tax law with the $10k cap on SALT and property tax?
Going to attempt it tomorrow, it will save me thousands if I’m able to do it.
Also need to check if AMT for us will disallow this anyway. Accountant is telling me to do it, so I’m assuming not.
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Man o War said:
Has anyone who escrows property tax been able to prepay 2018 property tax so the deduction can be taken for 2017 ahead of the new tax law with the $10k cap on SALT and property tax?
Going to attempt it tomorrow, it will save me thousands if I’m able to do it.
Also need to check if AMT for us will disallow this anyway. Accountant is telling me to do it, so I’m assuming not.
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I am in AMT anyways so it doesn’t save me anything. New tax bill is not that bad. I will save at least 8k as opposed to the current law. And I am a homeowner in NY. The reduction in percentage and increase of exemption amount for AMT make up for the loss of deductions. However if individual rate cuts expire I will eventually get hosed...
 
You can indeed pre-pay through your bank, I've been told. However, I'm in AMT and I don't know who your accountant is, but I'm pretty darn sure prepaying is not a good idea if you're paying AMT. Your deductions are already markedly reduced by AMT. Maybe if you pre-pay everything but 10k and leave yourself 10k to deduct in 2018 you'd save some money possibly, but even that's unlikely with AMT.

Your accountant specifically told you that even though you're AMT that you should pre-pay?

"The decision to prepay your Feb. 1, 2018 real estate tax bill by the end of December is predicated on whether you are subject to the Alternative Minimum Tax (AMT)for 2017, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Eatontown.

"If you are subject to the AMT, then any additional real estate taxes paid will not reduce your federal income tax at all as for AMT purposes, real estate taxes are not allowed," Becourtney said.

He said the additional real estate tax payment will lower your regular tax, but the AMT liability will be unchanged -- thus your tax liability will be unchanged as you pay the higher of the regular tax or the AMT."
Understanding property tax prepayment | Biz Brain

same gist: Should you prepay your state income and property taxes?
 
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dannyboy1 said:
I am in AMT anyways so it doesn’t save me anything. New tax bill is not that bad. I will save at least 8k as opposed to the current law. And I am a homeowner in NY. The reduction in percentage and increase of exemption amount for AMT make up for the loss of deductions. However if individual rate cuts expire I will eventually get hosed...
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I typically am always hit with AMT also, which my accountant knows and still advised us to do it. My understanding is AMT is going to hit less taxpayers now, so some docs will pay less taxes for 2018 even with the loss of these deductions.
 
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facted said:
You can indeed pre-pay through your bank, I've been told. However, I'm in AMT and I don't know who your accountant is, but I'm pretty darn sure prepaying is not a good idea if you're paying AMT. Your deductions are already markedly reduced by AMT. Maybe if you pre-pay everything but 10k and leave yourself 10k to deduct in 2018 you'd save some money possibly, but even that's unlikely with AMT.

Your accountant specifically told you that even though you're AMT that you should pre-pay?

"The decision to prepay your Feb. 1, 2018 real estate tax bill by the end of December is predicated on whether you are subject to the Alternative Minimum Tax (AMT)for 2017, said Neil Becourtney, a certified public accountant and tax partner with CohnReznick in Eatontown.

"If you are subject to the AMT, then any additional real estate taxes paid will not reduce your federal income tax at all as for AMT purposes, real estate taxes are not allowed," Becourtney said.

He said the additional real estate tax payment will lower your regular tax, but the AMT liability will be unchanged -- thus your tax liability will be unchanged as you pay the higher of the regular tax or the AMT."
Understanding property tax prepayment | Biz Brain

same gist: Should you prepay your state income and property taxes?
Click to expand...

Yes. He just did a projection for us and told me to prepay. I’m going to clarify this with him tomorrow, because I didn’t consider doing this since I figured it would be disallowed.
 
"Prepayment provision. For tax years beginning after Dec. 31, 2016, in the case of an amount paid in a tax year
beginning before Jan. 1, 2018 with respect to a State or local income tax imposed for a tax year beginning after
Dec. 31, 2017, the payment will be treated as paid on the last day of the tax year for which such tax is so imposed
for purposes of applying the above limits. (Code Sec. 164(b)(6), as amended by Act Sec. 11042) In other words,
a taxpayer who, in 2017, pays an income tax that is imposed for a tax year after 2017, can’t claim an itemized
deduction in 2017 for that prepaid income tax."
​
I cut and pasted that from a summary I found online. I believe you can prepay a 2017 tax payment that is due in 2018, but I do not think you can prepay a 2018 tax and get deduction on your 2017 taxes for it. As an example, estimated taxes for Q4 2017 are due by January 15, 2018 so if you paid them by 12/31/17 that'd be deductible from 2017 taxes.

At least that's my understanding of it. I suspect CPAs are hastily trying to digest all the nuances so they can give accurate recommendations.
 
Mman said:
"Prepayment provision. For tax years beginning after Dec. 31, 2016, in the case of an amount paid in a tax year
beginning before Jan. 1, 2018 with respect to a State or local income tax imposed for a tax year beginning after
Dec. 31, 2017, the payment will be treated as paid on the last day of the tax year for which such tax is so imposed
for purposes of applying the above limits. (Code Sec. 164(b)(6), as amended by Act Sec. 11042) In other words,
a taxpayer who, in 2017, pays an income tax that is imposed for a tax year after 2017, can’t claim an itemized
deduction in 2017 for that prepaid income tax."
​
I cut and pasted that from a summary I found online. I believe you can prepay a 2017 tax payment that is due in 2018, but I do not think you can prepay a 2018 tax and get deduction on your 2017 taxes for it. As an example, estimated taxes for Q4 2017 are due by January 15, 2018 so if you paid them by 12/31/17 that'd be deductible from 2017 taxes.

At least that's my understanding of it. I suspect CPAs are hastily trying to digest all the nuances so they can give accurate recommendations.
Click to expand...

Yes, they specifically disallowed SALT prepayments but not property tax prepayments. Definitely a loophole for property tax. AMT impact is the thing that had me held up about doing this, not sure what he saw on my projections that led him to tell me to prepay.
 
Man o War said:
Yes, they specifically disallowed SALT prepayments but not property tax prepayments. Definitely a loophole for property tax. AMT impact is the thing that had me held up about doing this, not sure what he saw on my projections that led him to tell me to prepay.
Click to expand...

I thought property tax was considered a state and local tax since that is who it is levied by and paid to.
 
Mman said:
I thought property tax was considered a state and local tax since that is who it is levied by and paid to.
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For the purposes of what was disallowed in the bill, it’s only *income* tax deductions that are disallowed for prepayment.
Now, the IRS may very well come back later and rule that you can only deduct an expense in a calendar year that was for expenses accrued in that calendar year. So far though the language isn’t there disallowing property tax prepayment. Tons of docs at my hospital are prepaying property tax.
 
your local area may not allow this option. Mine doesn't. I don't escrow though.
 
facted said:
Need a new CPA. Property tax is specifically not deductible when calculating AMT. If you qualify for AMT, prepayment won't do diddly for you.

Can You—And Should You—Claim a Deduction for Your Property Taxes?
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No. He’s good, and knows what he’s talking about.
He said this particular issue is totally situationally dependent and for my wife and I it is worth it for us to prepay. He said he is not advising all his clients to prepay, but is advising us to.
Now, to see if our county will let me pre pay. He is telling me some are not.
 
Man o War said:
No. He’s good, and knows what he’s talking about.
He said this particular issue is totally situationally dependent and for my wife and I it is worth it for us to prepay. He said he is not advising all his clients to prepay, but is advising us to.
Now, to see if our county will let me pre pay. He is telling me some are not.
Click to expand...
If you find out why, let us know. As property tax is not deductible under AMT, this makes no sense to me unless maybe he thinks you won't be subject to AMT this year? Did your income change substantially?

Yet another source:
Alternative Minimum Tax: Common Questions - TurboTax Tax Tips & Videos

"Suggestion 1: In a year that you have to pay the AMT, don't bother prepaying real estate or fourth-quarter state estimated tax payments in December. You get no benefit from paying these taxes in a year that you are subject to the AMT."
 
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My accountant said to pay all of 2017 and 2018 if I can.
 
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Just a history lesson folks. AMT is the worst tax ever invented for the upper middle class. It was supposed to only impact those making 200k in the late 1960s by the socialist democrats to hit the super rich.

200k is like $800k? In 2017 dollars? But amt hits 60-70% of those making 200k-500k in today’s money especially those in high state income tax states. It’s a huge cash cow. Generates 1.5-2 trillion over 10 years these days. Enough to pay for Obamacare by itself. Of course govt finds other ways to blow money so needs amt revenues

It rarely affects those making 800k due to logistics of the flat 26/28% tax (thanks to slick Willey Clinton 42 increasing the taxes by 2% during his term)

Anyways. One can argue prepaying property taxes for next year is a good way to save money. But u lose one years of potential money to reinvest. Say prepay 10k in property taxes. That’s $3300 tax savings. But my buddy put 10k in bitcoin easier this year is up to like $60k. So think about ur opportunity costs lost by prepaying. Or just regular S and P is up 22% this year already.
 
Oh come on, can we not pretend that currency day trading is a reasonable alternative to the guaranteed "return" of good tax management?

Prepaid taxes resulting in $3300 saved on $10K, guaranteed, is a massive return on investment. You're really turning up your nose at 33% because your buddy says he made money on Bitcoin?
 
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facted said:
If you find out why, let us know. As property tax is not deductible under AMT, this makes no sense to me unless maybe he thinks you won't be subject to AMT this year? Did your income change substantially?

Yet another source:
Alternative Minimum Tax: Common Questions - TurboTax Tax Tips & Videos

"Suggestion 1: In a year that you have to pay the AMT, don't bother prepaying real estate or fourth-quarter state estimated tax payments in December. You get no benefit from paying these taxes in a year that you are subject to the AMT."
Click to expand...

Yes, I made quite a bit more money this year. He said given our income, deductions, etc. we will see benefit from prepaying the tax. He said your accountant needs to run a projection for you to tell whether or not it will benefit you. This will save me thousands of dollars according to him. He has been doing my taxes for years and has found some fairly incredible savings at times that have stood up to audit, so I trust him.
If you don’t want to go to the trouble of getting a projection, I would just pay it. You have to pay it anyway, and I’d think you’d rather have the option available at tax time than not.
 
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Arch Guillotti said:
How many times have you been audited?
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One. It was right after Obama increased the budget for IRS audits on high income taxpayers. However, they went back several years in one fell swoop so I had a total of 7 years audited I believe. My accountant was an absolute beast and they found nothing despite their best efforts.
 
Man o War said:
One. It was right after Obama increased the budget for IRS audits on high income taxpayers. However, they went back several years in one fell swoop so I had a total of 7 years audited I believe. My accountant was an absolute beast and they found nothing despite their best efforts.
Click to expand...
Ugh, what a colossal pain in the ass that must've been.
 
pgg said:
Ugh, what a colossal pain in the ass that must've been.
Click to expand...

Honestly @pgg it was easy for me. My accountant offers audit insurance which I buy every year for a few hundred bucks, and he maintains meticulous records for me, so it was really a matter of some meetings he attended and handing everything over. I didn't have to do much. He did have to do some digging in the tax code when they tried to disallow some of my deductions, but this guy is like an encyclopedia so he didn't act like it was too taxing.
 
Man o War said:
Yes, I made quite a bit more money this year. He said given our income, deductions, etc. we will see benefit from prepaying the tax. He said your accountant needs to run a projection for you to tell whether or not it will benefit you. This will save me thousands of dollars according to him. He has been doing my taxes for years and has found some fairly incredible savings at times that have stood up to audit, so I trust him.
If you don’t want to go to the trouble of getting a projection, I would just pay it. You have to pay it anyway, and I’d think you’d rather have the option available at tax time than not.
Click to expand...
Did he say if you're paying AMT this year with the projections? Again, real estate property tax is excluded when you pay AMT, so if you're paying AMT, I can't possibly see how pre-paying would help. You're right that pre-paying some of it can't really hurt other than lost opportunity cost as long as you have more than 10k to pay for 2018 (as you can deduct up to 10k in 2018 and chances you'll fall in AMT in 2018 tax year are far less than they are in 2017).
 
facted said:
Did he say if you're paying AMT this year with the projections? Again, real estate property tax is excluded when you pay AMT, so if you're paying AMT, I can't possibly see how pre-paying would help. You're right that pre-paying some of it can't really hurt other than lost opportunity cost as long as you have more than 10k to pay for 2018 (as you can deduct up to 10k in 2018 and chances you'll fall in AMT in 2018 tax year are far less than they are in 2017).
Click to expand...
My state income tax alone is more than 10k, so my property tax is non deductible going forward.
Yes, I found this article that explains it the best. This is essentially what my CPA told me but I think this article does a better job of explaining it than I could. This is why he is saying some of his higher income clients should prepay and some should not.
The Alternative Minimum Tax Sweet Spot
 
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Man o War said:
My state income tax alone is more than 10k, so my property tax is non deductible going forward.
Yes, I found this article that explains it the best. This is essentially what my CPA told me but I think this article does a better job of explaining it than I could. This is why he is saying some of his higher income clients should prepay and some should not.
The Alternative Minimum Tax Sweet Spot
Click to expand...

Interesting, thanks for sharing. so you must have made over 450k this year?

I got AMT hit last year (400k) and made LESS this year, so no pre payment for me.

Edited. See post about irs statement below
 
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caligas said:
Interesting, thanks for sharing. so you must have made over 450k this year?

I got AMT hit last year (400k) and made LESS this year, so no pre payment for me.

By the way if anyone is having trouble with the issue of their county “not doing prepayment,” just send a check. Use last years amount. Mark it clearly as payment for 2018 property tax. If they cash it, they “do prepayment.”
Click to expand...

Yes, correct. I didn’t know about this either until this year with the prepayment thing, and I’ve been an attending for a long time. I wish they would’ve just simplified the tax code like they said they were going to so we don’t have to play these reindeer games....
 
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Man o War said:
Yes, correct. I didn’t know about this either until this year with the prepayment thing, and I’ve been an attending for a long time. I wish they would’ve just simplified the tax code like they said they were going to so we don’t have to play these reindeer games....
Click to expand...

Well it is simplified for a lot of folks with the higher standard deduction, but for us it definitely just got more complicated. I’ve always used TurboTax but maybe not for 2018.
 
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sevoflurane said:
My accountant said to pay all of 2017 and 2018 if I can.
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Sounds like they are giving random advice.

Actually on 2nd thought they might be up to something. By prepaying even with AMT you are locking yourself into the 28% AMT rate. Next year that money will likely come out of your 37% (or 35%) tax rate money.

The old coot thinks ahead of the guys freelancing articles.
 
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Regardless, I think this discussion is academic. The IRS said today you could only deduct a tax assessed in 2017 payable in 2018. And that's not really what people are trying to do. People are trying to prepay their 2018 assessed taxes which is not possible like someone else already mentioned.

IRS Advisory Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017 | Internal Revenue Service

Example 1: Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018. On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018. Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.
Click to expand...

Example 2: County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 – June 30, 2018. County B intends to make the usual assessment in July 2018 for the period July 1, 2018 – June 30, 2019. However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year. Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018.
Click to expand...
 
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This is govt. govt will decide whether taxes are deductible or not. So watch out.

IRS cautions taxpayers on prepaying property taxes

Also remember 1994 Supreme Court decision about taxes. Supreme Court allowed taxes to be retroactive even when law was passed later. This allowed California to impose retroactive prop 30 taxes on state income taxes of (for very high earners) 11.25 and 13.25 percent in tax year 2012 retroactive to January 1 2012 even though the measure wasn’t passed till November 2012 elections.
 
I'm not sure it will help but I mailed mine out yesterday per what my CPA suggested we all do. Now, assuming they actually process it in time..... I'll F/U with a call tomorrow.
 
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