Worth it to Pay First 2017 RE Tax Installment before End of Year?

Question

I am curious - Living in Chicago, both a high state income and real estate tax district, does it make sense to try and pay the first RE tax installment of my 2017 bill before year end? I will be over the newly proposed 10k threshold once the law is enacted and therefore unable to make the full deduction for 2018.

I understand there's a time value of money factor here but curious if other RE investors in similar cities are doing/considering this strategy, if at all possible.

Michael Plaks · Answer

@Malcolm Douglas

@Ashish Acharya is correct that prepaying income tax will not work. However, I believe you're asking about local property taxes, and then you can and should prepay in 2017, as @Logan Allec said.

The new law will make the old 'bunching" strategy more important: Every second year, you would want to pay two years of itemized deductions: property taxes, donations etc. The years in between you'd use a standard deduction. It's quite possible that this strategy will benefit you.

Logan Allec · Answer

@Ashish Acharya Property taxes are not income taxes.

Ashish Acharya · Answer

@Malcolm Douglas , you mean 2018 tax bill?

if yes, you will not get deduction this year any way.

Here is the language from the conference agreement

"in the case of an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, the payment shall be treated as paid on the last day of the taxable year for which such tax is so imposed for purposes of applying the provision limiting the dollar amount of the deduction. Thus, under the provision, an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017."

In order words, a taxpayer who, in 2017, pays an income tax that is imposed for a tax year after 2017, can't claim an itemized deduction in 2017 for that prepaid income tax.

Ashish Acharya · Answer

Oh my bad, thanks

Malcolm Douglas · Answer

@Ashish Acharya Thanks. Apologies if I wasn't clear but I was asking about property taxes.

@Logan Allec, @Chase Gochnauer, @Michael Plaks Thanks for the info! Very helpful and something I will look to research further before year end.

Worth it to Pay First 2017 RE Tax Installment before End of Year?

Worth it to Pay First 2017 RE Tax Installment before End of Year?

Most Popular Reply

7 Replies