Why you may want to accelerate your property tax payment

This article organizes the original guidance on why you may want to accelerate your property tax payment into 2017 into clear sections for easier reading and reference.

Overview

This opening section presents the main context from the original post.

Accelerating deductible expenses, such as property tax on your home, into the current year typically is a good idea. Why?

It will defer tax, which usually is beneficial. Prepaying property tax may be especially beneficial this year, because proposed tax legislation might reduce or eliminate the benefit of the property tax deduction beginning in 2018.

Proposed changes

This section keeps the original guidance focused on proposed changes.

The initial version of the House tax bill would cap the property tax deduction for individuals at $10,000. The initial version of the Senate tax bill would eliminate the property tax deduction for individuals altogether.

In addition, tax rates under both bills would go down for many taxpayers, making deductions less valuable. And because the standard deduction would increase significantly under both bills, some taxpayers might no longer benefit from itemizing deductions.

2017 year-end planning

This section keeps the original guidance focused on 2017 year-end planning.

You can prepay (by December 31) property taxes that relate to 2017 but that are due in 2018 and deduct the payment on your 2017 return. But you generally can’t prepay property tax that relates to 2018 and deduct the payment on your 2017 return.

Prepaying property tax will in most cases be beneficial if the property tax deduction is eliminated beginning in 2018. But even if the property tax deduction is retained, prepaying could still be beneficial. Here’s why:

• If your property tax bill is very large, prepaying is likely a good idea in case the property tax deduction is capped beginning in 2018.
• If you could be subject to a lower tax rate in 2018 or won’t have enough itemized deductions overall in 2018 to exceed a higher standard deduction, prepaying is also likely tax-smart because a property tax deduction next year would have less or no benefit.

However, there are a few caveats:

• If you’re subject to the AMT in 2017, you won’t get any benefit from prepaying your property tax. And if the property tax deduction is retained for 2018, the prepayment could cost you a tax-saving opportunity next year.
• If your income is high enough that the income-based itemized deduction reduction applies to you, the tax benefit of a prepayment may be reduced.
• While the initial versions of both the House and Senate bills generally lower tax rates, some taxpayers might still end up being subject to higher tax rates in 2018, either because of tax law changes or simply because their income goes up next year. If you’re among them and the property tax deduction is retained, you may save more tax by holding off on paying property tax until it’s due next year.

It’s still uncertain what the final legislation will contain and whether it will be passed and signed into law this year. We can help you make the best decision based on tax law change developments and your specific situation.

Related Resources

These resources connect the article topic with related Bowers service pages and approved professional reading.

• Tax Services
• Business Strategy & Growth
• Bowers Updates
• About Bowers
• Harvard Business Review
• Accounting Today

FAQ

The questions below summarize the main points already covered in the article.

What is the main focus of Why you may want to accelerate your property tax payment into 2017?

The article focuses on why you may want to accelerate your property tax payment into 2017 and organizes the original guidance into sections for easier review.

What topics does the article cover first?

The article begins with proposed changes and then continues through the remaining points in the original post.

Which additional areas are included?

Additional sections include 2017 year-end planning.

Does the post include action items or reminders?

Yes. The original post includes listed items that have been kept in list format for easier scanning.

Was the original post wording changed?

The revision keeps the author wording and updates the structure so the post is easier to read online.