Tax Reform Planning: Pay your Quarterly Real Estate Taxes Before Year-EndDecember 11, 2017
Looking to get ahead of tax reform? If you owe more than $10,000 in real estate taxes, it might make sense to prepay these before year end.
The Senate just passed their tax reform bill last week, and now it’s up to both the House and Senate to reconcile the differences between their two bills and create a uniform tax reform plan. In the meantime, there are some things you should be doing before year end, like prepaying real estate taxes, for example.
In 2016, about 45% of US households either paid no income taxes or got money from the government. Not a refund of the taxes they paid, but a hand up from Uncle Sam. The top 1% pay 43% of all federal individual income taxes. Where does that leave the other 54%?
Am I going to lose deductions and exemptions?
What’s going to happen to my taxable income under tax reform? It is easy to figure out. Get a copy of your 2016 Federal tax return and a calculator. Add the amounts on Page 2, lines 40 and 42. This total is the sum of your 2016 itemized deductions and exemptions.
Now, if you itemized your deductions, you should have a Schedule A, Itemized Deductions. It may be just after the 2nd page of your Form 1040. Sum up the following lines on Schedule A - line 6, real estate taxes (but do not use more than $10,000), line 10, home mortgage interest and line 19 gifts to charity. Compare this sum to the 2018 standard deduction of $24,000, for married couples and $12,000 if single. For 2018 you get to deduct the greater of the sum of your deductions, or the standard deduction amount. Yes, exemptions are gone in 2018.
Compare your total 2016 itemized deductions and exemptions to the amount computed above..
Did you win or lose on deductions?
What should I do before the end of the year?
Although the Senate passed their reform bill last week, there is no clear direction until Tax Reform is finalized. But, if your calendar year real estate taxes are more than $10,000, it could make sense to pay your quarterly real estate taxes that are due in February and May, 2018 before the end of the year.
If you really want to understand how the US tax system operates, check out The Tax System Explained in Beer, by Dan Mitchell.
As we get closer to the end of the year and the state Tax Reform becomes clearer, be sure to contact us for tax planning options that fit with your specific tax situation.