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Tax reform will be capping your state and local tax deductions at $10,000 beginning in 2018.

To prevent taxpayers from navigating around the $10,000 deduction cap that will take effect in 2018, Congress wrote right into the tax bill that taxpayers will not be able to prepay their 2018 state income taxes and take the tax deduction in 2017.  However, they left the door open for prepaying your 2018 property taxes in 2017 and taking the deduction in 2017 before the cap goes into effect.

Should you do this?  The answer depends on your expected income for the 2017 tax year.

It is rare that a blanket statement can be made when it comes to taxes because each taxpayer’s situation is unique, and this is no exception.  It may be advantageous for many taxpayers to prepay their real estate taxes, if at all possible.  This works in states where the real estate taxes are assessed in arrears. Prepaying real estate taxes in 2017 is a good idea if there is no question that you will be able to itemize deductions in 2018 (bear in mind that many taxpayers will no longer itemize, as the standard deduction will be increased in 2018).  

Many taxpayers who could itemize deductions historically will no longer be able to itemize deductions in 2018, as the standard deduction will rise to some amount in excess of $24,000 for a married couple.  For those taxpayers, even if paying the RE taxes early pushes them into the AMT in 2017, it will still be beneficial to prepay real estate taxes and take whatever reduced deduction is available in 2017, rather than be able to deduct none of the real estate taxes in 2018.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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