The New Tax Law is Official! Should You Prepay Your 2018 Property Taxes By Year-End?
As a homeowner in a high-tax state (New Jersey), I took a very personal interest in this topic. A question from a colleague last week led to hours of pouring through articles about the nuances of the newly minted Tax Cuts and Jobs Act. Here is my colleague’s question and my answer:
Question: Can I prepay 2018 property taxes (e.g., for a house in NJ with $15,000 of property taxes) by December 29, 2017 (the last business day of the year) to avoid the loss of a full property tax deduction next year with the new $10,000 cap on deductible state and local taxes (SALT deductions)?
Answer: It depends. If you pay your property taxes directly to your local municipality, check with the tax collector to determine if property tax prepayment is allowed and, if so, how much money or quarterly payments can be accepted for prepayment. If your property taxes are paid via an escrow account that is held by a mortgage lender, they are not considered payable by the IRS until the lender (or lender’s loan servicer) makes a payment to your local tax collector, regardless of when you send the lender a payment.
If you are eligible to itemize deductions, property taxes are claimed as an itemized deduction on Form 1040, Schedule A. If you are subject to the alternative minimum tax (AMT), prepaying property taxes won’t help because state and local taxes are not deductible under AMT rules.
Below is a graphic that I created with five decision-making questions. If you can answer the questions as indicated, 2018 property tax prepayment may be useful.