The $1.5 trillion Republican tax plan headed to President Donald Trump’s desk puts new limits on how much households can deduct in state and local taxes if they itemize.
Beginning in 2018, couples filing jointly will be limited to an annual combined deduction of no more than $10,000 in state and local income, sales and property taxes.
The bill prohibits people from prepaying 2018 state or local income taxes this year and claiming them as an itemized deduction for 2017, but is less clear on whether that strategy might work for property taxes.
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How could I be able to pay property taxes early?
Property tax bills generally go out in the fall, with half the taxes due by early December and the other half due by April. It’s possible to pay the whole thing when the bill first arrives or pay the second installment early.
Paying the entire bill this year presumably would allow you to deduct your entire property tax bill from your 2017 federal taxes. That’s important if you expect your state and local taxes will be greater than $10,000 next year, which means not all could be deducted.
What should I do first?
First and foremost, talk to your tax adviser, said Darien Shanske, a tax law expert at the UC Davis School of Law.
There are a lot of complexities to the tax changes to sort out before deciding whether paying early would be a prudent financial move, Shanske said.
“You shouldn’t go into credit card debt to pay these things,” Shanske said. “There is potential to save a little bit of money by prepaying, but just don’t wing it.”
OK, so I’ve talked to my tax adviser and decided to pay early. How do I do so?
If you pay your property taxes yourself, contact your county tax assessor’s office.
If your mortgage servicer pays your property taxes for you from an escrow account, it might not be possible to pay earlier. In such a case, you should contact your servicer.
Will this definitely work?
No, said Shanske, who said he’s still researching the bill and said the IRS could interpret it in a way that would block such a move.
Robert Kalonian, a spokesman with the Los Angeles County Office of the Assessor, agreed that paying the entire bill now is a possibility to avoid a higher federal tax bill, but also isn’t positive it will work.
“We are still trying to get our arms around it,” he said. “It is going to be a little unclear for now.”