Scrambling To Prepay 2018 Property Taxes? Maybe You Shouldn't
Updated at 7:43 p.m. ETPart of the Republican tax overhaul that President Trump signed into law last week has homeowners around the country doing something unusual: rushing to pay their 2018 property taxes well before the due date. That's because the new law includes a $10,000 cap on the amount of state and local taxes people can deduct on their federal returns. Before, if someone paid $24,000 in property taxes — as some people in higher tax states like New York and California do — and then paid $20,000 in state and local income taxes they were allowed to deduct $44,000 on their federal tax return. Now that number is capped at $10,000. The change could cost some people thousands of dollars. In response to questions from taxpayers and preparers, the Internal Revenue Service issued new guidance Wednesday. The IRS says taxes can be prepaid and deducted from federal returns if local authorities levy the taxes in 2017 and they are paid by Dec. 31. "I'm sending my checks in today," said Vanessa Merton of Hastings-on-Hudson, N.Y. She estimates the law change will cost her between $6,000 and $9,000. She hopes to delay that hit by prepaying next year's taxes before Dec. 31 so she can deduct them on her 2017 tax return. Merton says she is the fourth generation of her family to live in her large home. When she was growing up, she says, Hastings-on-Hudson was a factory town, but then wealthy people moved in and now property values — and taxes — have increased. She predicts that without the ability to deduct all local taxes on federal returns, some people in her community may have to move. "We are all really wondering, calculating and trying to figure out if it's going to be possible [to stay] in the homes that we have cherished for a very long time," said Merton. Merton works as a law professor and also is vice chair of her local Democratic Party committee. She sees politics at play in the new law, since most states with higher taxes tend to vote for Democrats over Republicans.That echoes criticism New York Gov. Andrew Cuomo has voiced against the tax overhaul law. Cuomo signed an executive order last Friday making it easier for people to pay their taxes early and make partial payments. That had local tax offices fielding calls the day after Christmas as homeowners tried to figure out how much they should pay. An automated message at the Nassau County Department of Assessment asked people to call later because, "all assessment assistance personnel are busy with other callers."In neighboring New Jersey, accountant Tracy Beveridge said she has been fielding calls and emails from clients. She warns that not everyone should prepay property taxes and that it is difficult to offer simple guidelines — which is especially true for those who could be subject to a minimum tax, for example a married couple who earn more than $83,800 a year and file a joint return."If a client is in AMT — what they call an alternative minimum tax — there is no benefit to prepaying your taxes. It just negates the benefit and you're just out the cash," said Beveridge. Beveridge said some people who would not be subject to the AMT could trigger it if they double up on paying next year's property taxes early. Her advice is to consult with an accountant who can look over your previous return and offer advice. In the past few days, Beveridge said, she has examined dozens of her clients' returns and that "out of, probably, 80 that I've done already, I think, four it has benefited [to prepay property taxes]." That benefit applies only to property taxes, she said, because the new law doesn't allow people to prepay income taxes. Copyright 2017 NPR. To see more, visit https://www.npr.org/.