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Do Not Rush to Prepay Property or State Taxes - Tax Reform

Do Not Rush to Prepay Property or State Taxes - Tax Reform

In anticipation of upcoming cuts of itemized deductions, there are popular recommendations to prepay property or state taxes to boost 2017 deductions.

State & Local Tax - Word of caution

Prepayment of state and local taxes is useless because you will receive a state refund for tax overpayment that will be added to your 2018 federal taxable income. As a result, tax increase on 2018 return may be greater than tax saving on 2017.

Prepayment of property tax is generally possible

Some states even encourage prepayment of 2018 property tax. Governor Andrew M. Cuomo has signed an emergency Executive Order to allow New Yorkers to prepay next year’s property taxes this year, before the new tax law takes effect. The order authorizes localities to issue warrants for the collection of early property tax payments and to accept partial payment—allowing New Yorkers to pay a portion or all of their 2018 property taxes before the end of the year to keep the deductibility.

Not for rentals!

Prepayment of property tax is only useful if real estate is not used for rental purposes.

Prepaid property taxes due for 2018 on properties used for business will kick back. Itemized deductions for 2017 will not increase with additional tax paid on rental property. However, your 2018 tax return will have less rental expenses to deduct, thus tax bill due in 2019 will be higher.

Ines Zemelman, EA
Founder of TFX