I forked over
I paid my 2018 property taxes early and I will net at least 15% on the deal! My county made it extremely easy to go on their website and eCheck the 2018 payment. I reviewed our 2016 Schedule A and our deductions were less than the 2018 tax year standard deduction ($24,400 for a married couple). I roughed in 2017 and it looked like the same case for what I’ll be filling out here in a month or so, still below the 2018 limit. Poof – easy choice to accelerate my 2018 payment, so then I went and found the money to put in checking to pay it (less poof there!).
Disclaimers, always disclaimers
Again, no, not a scam. This may actually be an opportunity for you. The latest tax changes have passed and will take effect in 2018 (mostly). We noted some tax planning opportunities in the “Urgent money opportunity!” post. Still acting quickly, there may be another 2017 tax planning opportunity with property taxes for you that could be the equivalent of a 10-25% return (or more depending on your marginal tax bracket). We’re providing general advice here, please check with your tax adviser for your specific situation. And by act quickly, that means by 12/31/2017.
Facts, again
Tax rates – generally going down next year, meaning that deductions are worth more this year than next.
Standard deduction – going up next year, meaning you need more deductions to obtain any benefit from a Schedule A deduction. Also, your state and local tax deduction (property and income taxes) will be limited to $10,000.
Property taxes
The facts above may add up to a planning opportunity for you this year with property taxes.
Hypothetically, maybe you are a retiree or near retiree that has paid their 2017 property taxes and you itemize on Schedule A and your Schedule A deductions exceed the standard deduction. The 2017 property taxes will be part of your Schedule A deduction.
You may be able to prepay your 2018 property taxes, on or before 12/31/2017. If you do, you will also include those on your Schedule A and the tax ‘reduction’ from that additional deduction should decrease the tax you owe by your marginal rate, 10 to 25% or more. That’s kind of like getting a CD paying a huge rate – something you likely don’t want to pass up.
Example
As an example, let’s say your 2018 property taxes are $1,000 (easy round number) and your marginal rate is 15%, and the extra $1,000 deduction does not move you into a lower marginal rate – that’s an extra $150 back as a refund. Or, like getting a one-year CD with a 15% return. You’ll have to pay the tax anyway, why not make it a little less painful.
In this example, we assume that in the 2018 tax year (the one you file by April 15, 2019) the $1,000 is ‘buried’ in the standard deduction and there is no ‘additional’ tax benefit. You only get an explicit deduction and bigger refund if you accelerate the payment to 2017.
If, based on your tax advisers’ analysis and your state/county/city allowing it, you make your 2018 property tax payment now, you may get a bigger deduction (and lower taxes/bigger refund) on your 2017 return.
How to from WUSA
Here’s a piece that WUSA 9 in DC did to help people understand how to prepay. They mention mortgages where taxes are escrowed.
Actions you can take include:
-Call your tax advisor and analyze your 2017/2018 planning opportunity.
And if you have not seen the “Why you should read this blog…WIIFY” post, it’s here https://nosurprisesretirement.com/2017/07/09/first-blog-post/
Questions, comments, or suggestions for retirement surprise areas you want to know more about?
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