As you may have seen from our prior post, Year-End Tax Tips, In Light of Tax Reform, the new tax law that passed last week put a cap on the aggregate of the property tax & state tax deductions in 2018 at $10,000. This will apply to any payments made for property taxes OR other state taxes in 2018. There has been a lot of speculation about pre-paying 2018 property taxes to get around this new restriction.
Last night, the IRS issued clarification on deducting property taxes. The IRS will NOT allow a deduction in 2017 for prepayments of property taxes that have not been assessed yet. That is, you cannot deduct 2018 property taxes paid in 2017 unless they have been assessed by the taxing authorities. In Texas, our 2018 taxes have not been assessed yet, so will not be eligible for prepayment and deduction.
You CAN deduct 2017 property taxes paid by year end. 2017 property taxes were assessed in the fall of 2017, so these are eligible deductions if paid by December 31, 2017. These are not due until January 31, 2018 to the taxing authority.
- If you pay in 2017, they WILL be eligible for deduction in 2017. Note the deduction may be limited due to alternative minimum tax or phase outs, but it will still be eligible for deduction.
- If you pay in 2018, they will be subject to the new 2018 $10,000 limitation.
Other Year-End Steps:
Itemized Deductions – the amount of the standard deduction is increasing in 2018. This increase will mean that fewer taxpayers will itemize deductions in 2018. The new limit for a married couple is $24,000. Because of this you may consider prepaying certain itemized deductions in 2017. These may include:
- Accelerating charitable deductions into tax year 2017. This includes cash donations but also “in kind” deductions of stocks, mutual funds, clothing, furniture, and other household items. So clean out those closets before year end and make a run to Goodwill, if you can, to get the deduction now.
- Accelerating the 4th quarter state estimated tax payment due January 16, 2018 into 2017 (if applicable).
- Paying 2017 property taxes already assessed by December 31, 2017 (see detail above).
- Paying for any unreimbursed employee business expenses by year end.
Business Deductions – tax brackets for all taxpayers have gone down for 2018. This may mean that business expenses paid in 2017 rather than 2018 will have a higher tax benefit if paid by year end. If your business has any unpaid supply bills or other outstanding vendor invoices, consider paying by year end. You may also consider paying your January rent payment by year end to get that deduction in 2017 as well. This would also apply to any equipment purchases, but in order to qualify for the write off, equipment must be in your office and placed in service by year end – not just on order.
Pass Through Entity & Corporation Tax Law Changes – there were substantial changes to the rules for business tax rates. As such, we are actively reseaching the impact on entity structure to evaluate potential structure change recommendations for 2018. These changes don’t impact 2017, but are effective January 1, 2018.
We have tax advisors on hand today and tomorrow for any questions you have specific to your own situation. Please email or call the office with any questions you have – we are here to help!
