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Archive for the ‘PropertyTax’ Category

Prepaying Taxes

Posted by taxguru on December 28, 2017

The new tax law does include a lot of changes; some good and some not so good.  Remember that the word “Reform” just means to change shape, not always as an improvement for the better.  This latest reformation-reformulation of our taxation policies does, surprisingly, eliminate and reduce a lot of deductions that have been around at least since many years before I started preparing tax returns in 1975. 

I don’t have time to discuss too many of the changes right now, as I have been busy doing a lot of year-end consulting with clients.  However one big change does need to be covered ASAP.  In fact, the following is based on some emails I sent to clients earlier today, who had asked about the idea of prepaying their property taxes before the end of this month.

As has been widely publicized, the new tax law, effective for 2018, puts a $10,000 cap on Schedule A deductions for State and Local taxes, including property taxes on personal use property.  There is no such limit on deducting taxes on business or rental properties, which are shown on different schedules with the 1040.

For those in high tax states such as Calif, this upcoming limit does have many people choosing to prepay some of their State and Local taxes before the end of 2017 in order to claim them without the limit on their deductibility.

There are special rules for deducting property taxes that do prevent too much prepayment.  The taxes paid and deducted have to be actually assessed and thus a true current liability. In Calif, the current year 2017/18 taxes are payable half by October 10, 2017 and the other half by April 10, 2018.  This means you can send the county the money for the 4/10/18 installment by 12/31/17 and deduct it on your 2017 1040. 

This is also the case for other states that allow their property taxes to be paid in multiple payments, such as Oklahoma that has due dates of December 31, 2017 and March 31, 2018 for their2017/18 tax assessments.   

Since taxes for the 2018/19 and future years have not yet been assessed, any payments sent in for those years are not legally deductible.  This has been such a hot topic that IRS issued a press release on this issue yesterday.

IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017

Income Taxes

While the above discussion focuses on property taxes, it also applies to payments of State income taxes, which are included in the new $10,000 limit.  The final 2017 estimated tax payments for both IRS and the States are technically due January 16, 2018.  For the past few months, with the threat of this new limit looming, I have been advising clients to send in their final 2017 ES payment by 12/31/17 in order to definitely be able to claim it.  Since Federal income tax payments are not deductible anywhere, making that final payment for 2017 in December or January makes absolutely no difference of any kind.

Just as with the issue of timing of a deduction for property taxes, a similar concept applies to State income tax payments.  Since 2017 is almost over and income taxes on what you earned are already accruing, you are allowed to deduct payments for your 2017 State income taxes.  You re not technically allowed to prepay in 2017 for what you expect your 2018 income taxes to be because as of 12/31/17, you have no legal liability for any 2018 income taxes. 

However there is an easy way around this little technicality if you are desperate to maximize your 2017 State income tax deduction.  You could send your State a huge check postmarked by 12/31/17 for thousands more than your 2017 taxes could possibly be and have it all applied to your 2017 account with the State.  Later on, when you file your 2017 State income tax return, have the overpayment rolled over to your 2018 account. 

I should point out that this discussion also applies to those folks who are lucky enough to reside in one of the cities that require their residents to pay separate City income taxes.



Taxes Are Not Donations

While this limit on deducting State and Local taxes was being debated over the past few months, some people suggested just claiming those payments as charitable donations on their tax returns as a way to avoid the $10,000 limit.  That idea would not fly for some very basic reasons. 

While it is true that governments do qualify as charities and deductions can be taken for voluntary contributions paid to them, that isn’t how tax payments work.  First is the fact that a legitimate deductible charitable donation has to be completely voluntary with no strings attached and nothing of value can be received back in return for the payment.  Nobody can say with a straight face that paying property and income taxes is in any way voluntary, or that nothing is received in return for those payments.  Paying those taxes allows you to keep the property and stay out of prison. Those are quite valuable things you receive in exchange for the “contributions” paid to the State and County.  Anyone who tries that trick will hasten their trip to the hoosegow. 


TaxCoach Software: Are you giving your clients what they really want?

Posted in Deductions, NewTaxLaws, PropertyTax, StateTaxes | Comments Off on Prepaying Taxes

Posted by taxguru on July 12, 2012

The other foreclosure crisis: Losing a home over $400 in back taxes – This is why I have always considered property taxes to be one of the most immoral taxes in existence.


Posted in PropertyTax | Comments Off on

Posted by taxguru on June 11, 2012

Will North Dakota be the first state to end property taxes? – I would love a chance to vote to eliminate the immoral property taxes that prevent people from owning property outright. Amazingly, polls are showing that this may lose by a three to one margin.  That’s nuts.

Update: North Dakota Property Tax Will Not Die
The pre-election polls were correct.  The voters opted to continue to have property taxes.  I guess this changes my plans to invest in ND real estate.


Posted in PropertyTax | Comments Off on

The Triple Whammy…

Posted by taxguru on October 29, 2009

Posted in comix, PropertyTax | Comments Off on The Triple Whammy…

Hammered from both sides…

Posted by taxguru on February 27, 2009

Posted in comix, PropertyTax | Comments Off on Hammered from both sides…

Improper property taxes?

Posted by taxguru on January 6, 2009

Calls Grow to Cap Property Taxes – It’s been more than 30 years since the infamous Proposition 13 was passed in California in 1978 to try to hold the line on property tax hikes.  It’s about time that more people in other states start fighting back against this immoral tax rather than just bending over and allowing their rulers to continue the fiscal raping of home owners.

While I despise pretty much all taxes, since they are really nothing more than methods for politicians to confiscate money from the public in order to spend on their own pet projects, property taxes are the least voluntary kind there is because you do absolutely nothing and are hit with them.  Most taxes are generated by doing things, such as earning income, buying or selling things.  Property taxes are new annual levies assessed on assets that you already own, and as many people unfortunately discover, the penalty for not paying them is the loss of the property itself.  Older folks who happen to live in appreciating areas are forced to sell their homes because they can’t afford to pay the annual “rent“ on their own property.  That is immoral and completely counter to the concept of private property ownership. 


Posted in PropertyTax | Comments Off on Improper property taxes?

Adding insult to injury…

Posted by taxguru on December 26, 2008

(Click on image for full size)

Posted in comix, PropertyTax | Comments Off on Adding insult to injury…

The new tax law changes

Posted by taxguru on July 31, 2008

As always, our rulers in DC have screwed up any attempt at tax simplification with yet another new law changing the rules of the game.

Here are some highlights of the new tax related changes courtesy of  one of my favorite reference sources,  TaxCoach Software:

On Wednesday, July 30, President Bush signed the “Housing and Economic Recovery Act of 2008.” While the bill focuses on protecting lenders and preventing foreclosures, there are three other tax provisions worth noting.

1.  The 2008 Housing Act gives “first-time homebuyers” (those who have not owned a primary residence for three years) a tax “credit” equal to 10% of the new home’s purchase price, up to $7,500 ($3,750 for married couples filing separately). This “credit” is available for purchases from April 9, 2008 through June 30, 2009. But, if you take the credit, you have to pay it back, in equal installments, over the next 15 years. So it’s really just an interest-free loan, not a true tax credit. It phases out for incomes between $75,000 and $95,000 ($150,000 and $170,000 for joint filers).

2.  The law creates a temporary deduction, for 2008 only, for property taxes for non-itemizers. The deduction is limited to $500 ($1,000 for married couples filing jointly).

3.  The law eliminates tax breaks on the sale of your principal residence for periods you don’t use it as your principal residence. Under old law, you could take a rental property or vacation home, use it for at least two years as your primary residence (five years if you acquired it in a Section 1031 exchange), then sell it and exclude up to $250,000 of gain from your income ($500,000 for married couples filing jointly). This held true even if most of the gain occurred while you were renting the property or using it as a vacation home. The new law taxes you on any gain after 2008 attributable to periods you don’t use it as your primary residence. (There’s no need to appraise the property to determine interim value; the new law determines excluded appreciation on a pro-rata basis, according to how long you own it.)


TaxCoach Software: Finally! Plain-English Tax Planing That Builds Your Business!


Posted in 121, Credits, PropertyTax | Comments Off on The new tax law changes

Posted by taxguru on July 25, 2008

Tax Relief, Sans Itemizing – Possible limited deduction for property taxes paid by non-itemizers.


Posted in PropertyTax | Comments Off on

Posted by taxguru on May 24, 2008

Posted in comix, PropertyTax | Comments Off on