The GOP is celebrating the passage of its tax reform plan this week. For those who itemize their deductions, now is the time to consider the impact of the tax legislation and take steps to potentially avoid higher taxes from changes that may go into effect in 2018.
Depending on your tax situation, one step that may be appropriate could involve prepaying 2018 property taxes before the end of 2017. Under current tax law, taxpayers can deduct the taxes they pay to state and local governments, including sales tax, income tax and property tax, with no limit. However, language in the final GOP bill caps the deduction at $10,000 on the combined value of state and local taxes (also known as SALT taxes) and property taxes. Prepaying 2018’s taxes can make sense for those not subject to the alternative minimum tax. However, if you have a mortgage and pay taxes into an escrow account you can only deduct the actual amount paid in taxes (which may differ from the amount in your escrow account). On a side note, the proposed legislation prohibits the deduction of any prepaid income taxes in 2017.
Things to Check Before Attempting to Prepay Your Property Taxes
Since property taxes are administered at the local level, the rules may not be the same for every jurisdiction. In some areas, prepayment of property taxes isn’t allowed at all. In others, it may be difficult to know how much to pay. For example, according to the City and County of Denver, the amount of taxes due depends on the mill levy, which is approved at the end of December each year. For those looking to prepay their property taxes, Denver advises homeowners to pay the tax amount from the prior year and make up the difference once the mill levy is approved. Douglas County allows homeowners to make prepayments as half or the full amount of estimated taxes, and payments must be received in-house by the Treasurer’s office no later than the close of business on the last working day of December. Be sure to visit the county website where you live or call the county treasurer’s office for clarification before you attempt to make a payment.
M.J. Smith & Associates Can Help
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