Essential questions and answers about prepaying your property taxes
MBK Homes is building a new home community in Anaheim. Dense single-family home communities are increasingly popping up and replacing strip malls and vacant lots. (Glenn Koenig / Los Angeles Times)
people around the country are rushing to prepay their property taxes ahead of Jan. 1, when the tax overhaul enacted by Congress and signed into law by President Donald Trump takes effect. But who should prepay their taxes and how to do so is confusing for many taxpayers. Here are some basic questions and answers about what's going on - with the caveat that every taxpayer's situation is different and, if possible, it's best to consult a tax professional who can assess your circumstances.
Q: What are the basic issues involved?
A: On Dec. 22, President Trump signed into the law the new Republican tax bill overhauling the tax code. A key provision of the bill modifies a long-standing tax break that allowed individuals to deduct from their federal taxable income any state and local taxes paid that year, including real estate or property taxes.
The new bill only lets people deduct up to $10,000 in state and local taxes, including property taxes. For instance, a household that pays $8,000 in property taxes and $12,000 in state and local income taxes currently can deduct $20,000 from their federal taxable income. Depending on how much money they make, that may shift them into a lower tax bracket. If they pay an effective 20 percent tax rate, that means they would save $4,000 on their overall tax bill thanks to the deduction.
But in April 2019, when they file their 2018 taxes, they could claim just $10,000 in state and local tax deductions. For simplicity's sake, if they are still paying a 20 percent tax rate, now they would save just $2,000 off their tax bill. (Authors of the bill say that for most people, the deduction's reduced value is well offset by other beneficial provisions of the new law, including lower federal tax rates.)
This is the new system most Americans will operate under in the years to come. But clever taxpayers might have a way to save a bit more when they file their tax returns this coming April (reflecting 2017 taxes). That's because some states and localities allow people to prepay their state and local taxes, including property taxes. If they did so this year, people could conceivably deduct them from their 2017 federal returns filed in April 2018.
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