Prepayment of 2018 Property Taxes Before the close of 2017

As you are aware, Congress has passed the “Tax Cuts and Jobs Act,” which is expected to be signed by President Trump before the Christmas break.  Many changes will come as a result of the passing of this tax bill.  One significant change applies to those who deduct their state and local income taxes, sales tax, and property taxes as itemized deductions on Schedule A.

With the new tax overhaul, state and local income taxes, sales tax, and property taxes will be capped at a combined $10,000, beginning in 2018.  Unfortunately, for taxpayer’s whose property taxes exceed $10,000 each year, the new tax law will slash this tax deduction and may result in the taxpayer not having enough deductions to itemize due to the increased standard deduction in 2018.  Beginning in 2018, the standard deduction is $12,000 for single taxpayers, $18,000 for head of household taxpayers, and $24,000 for married taxpayers filing a joint return.

Before 2017 year comes to an end, many individuals might consider prepaying their 2018 property taxes in 2017, if they are not subject to the alternative minimum tax.  By prepaying your 2018 property taxes in 2017, you can increase your tax deductions for 2017 and prevent limitations to your 2018 property taxes if they were paid in 2018.  If living outside Harris County, you should consult your local taxing authority to determine whether these prepayments will be accepted.  You should also consult your tax professional to make sure that this is a beneficial strategy for you to follow.

For example, Luke owns a home in Harris County with property taxes of $25,000 for 2017.  If he prepays $25,000 on his 2018 property taxes by year-end, he may be allowed a tax deduction of $50,000 for 2017, as opposed to $25,000 for 2017, and only $10,000 for 2018.  In doing so, Luke receives an additional $15,000 tax deduction over the two calendar years.

How to make your payment:

If you determine that you want to prepay your 2018 property taxes, you should write a separate check for your estimated 2018 taxes.  Designate on your check the tax account number associated with the property, and notate that it is an escrow amount for 2018.  The check should be postmarked or received before December 31st.  Forms and methods of payment can be found here.

There is much to consider under the new tax bill.  We at Maddox Thomson stand ready to answer your questions and help guide you in the right direction.

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