As you think about year-end tax strategies, one question to consider is whether you should prepay your first-quarter 2018 real estate taxes — taking the deduction for 2017 instead of for 2018.
This question has a special urgency this year because Congress is considering eliminating or limiting the state and local tax deduction in the tax overhaul it is considering. There are questions about whether the overhaul will be signed into law, but it could happen.
- What are the possibilities?
“The real estate tax deduction is scheduled to end in 2017, though there is an ongoing discussion about extending the deduction, with limits capping the deduction at $10,000,” says Richard Prinzi Jr., co-founder of F-Sharp Tax Management Services in Manhattan.
Long Island taxpayers would be severely impacted by either version, as many of the property tax bills well exceed even the allowed cap of $10,000 under the House bill, points out Steven Schlachter, a CPA at Margolin, Winer & Evens in Garden City.
- Pro: Take the deduction this year
Eric Meermann, vice president of Palisades Hudson Financial Group in Stamford, Connecticut, advocates prepaying the taxes for the first quarter.
“Take the benefit. Even if the tax bill doesn’t pass, it can be a good idea. If you are typically subject to the Alternative Minimum Tax (AMT), but this year you happen to have excess income that is likely to push you out of AMT, it would be better to pay your real estate tax (and other state taxes) in 2017 rather than 2018,” he says.
- Con: Wait and see
However, says Ralph DiBugnara, vice president, Residential Home Funding in Parsippany, New Jersey, “I don’t necessarily see a benefit in paying early, although in theory it would be a good gamble.”
His stance: “I’m taking a wait-and-see attitude” to find out what happens to the deduction.