Real Estate Tax Tip For Itemizers (aka Loophole ALERT) – Consider Paying Your Second Installment Property Tax Bill Early (as 2018+ is Now Capped)

  • December 27th, 2017
  • devinlucas

Consider prepayment of your property taxes in 2017.

Newport Beach, California – H.R. 1, known as the Tax Cuts and Jobs Act, which both houses of Congress passed on December 20, 2017, contains a large number of provisions that affect individual taxpayers, especially homeowners. As of January 1, 2018 – single or married – you are now limited to a deduction of $10,000 for all state and local taxes, including state sales tax and local property taxes. If you itemize your deductions and own real property, odds are you might exceed the new limit of $10,000.

While the bill prohibits prepayment of 2018 state or local income taxes; it is less clear as to property taxes, per the sources reviewed below. Caveat – the IRS (or congress) may close this potential loophole.

HOW TO PAY

Property tax bills for most of California are sent in the fall, with two payments due – the first half due by early December 2017 and the second half due by mid April 2018. For Orange County residents, that is a USPS postmark date of December 11, 2017 and April 10, 2018, respectively. (Not all jurisdictions may use postmark dates, check with your local jurisdiction). Paying the entire bill in calendar year 2017 would presumably allow you to deduct the same from your 2017 federal income taxes.

For Orange County residents (and likely most California residents, though check with your local jurisdiction), simply mail in your payment(s) and have it postmarked on or before December 31, 2017; or, pay online. Most counties allow for payments on-line (though often have additional fees for credit cards).

Orange County can be paid online here:
ocgov.com/octaxbill

If your mortgage servicer pays your property taxes for you from an account you pay into, you will need to contact your servicer directly.

SHOULD I DO THIS / WHAT ARE THE RISKS???

If you expect your 2018 state and local tax deductions to exceed $10,000, then you should consider the pre-payment as to ensure to capture the deduction in 2017 before it’s gone in 2018 and thereafter. There is no down side, beyond the fact you’re sending in a payment not yet technically “due” AND, there is a risk the IRS (or congress) will take some action to close this loophole and not allow for the deduction on your 2017 taxes.

If you do not have the money, you should not borrow to pre-pay. A tax deduction is unlikely worth going into debt, especially any form of high interest or credit card debt.

Talk with you tax advisor before proceeding as there are many variables that may impact your individual situation.

Moreover, there are likely numerous additional strategies to review and discuss with your tax advisor, such as ensuring year-end charitable contributions, payment of other state and local taxes, IRA contributions, and the like.

Sources:

– Revenue & Taxation Code Sec. 2512
– Orange County Treasurer-Tax Collector
http://www.ttc.ocgov.com/proptax/securetaxpay
– Journal of Accountancy, “What the tax reform bill means for individuals”, by Alistair M. Nevius
https://www.journalofaccountancy.com/news/2017/dec/tax-reform-bill-changes-for-individuals-201718070.html
– LA Times, “Tips for Paying Property Tax Early Before the New Law Kicks In” by Andrew Khouri
– Fortune.com, “President Trump Is About to Sign the GOP Tax Bill. Here’s When the Cuts Will Start”
http://fortune.com/2017/12/20/gop-tax-bill-cuts-start/
– CNN.com, “Homeowners scramble to pre-pay property taxes”by Anna Bahney
http://money.cnn.com/2017/12/26/pf/prepay-property-tax/index.html

-Devin Lucas

Author Devin R. Lucas is a Real Estate Attorney, Broker and REALTOR®, specializing in Newport Beach, Costa Mesa and Orange County, serving individual, investor and small business interests in real estate. Active with the Newport Beach Association of REALTORS® and Costa Mesa Chamber of Commerce, Devin R. Lucas Real Estate is an independent real estate brokerage and law practice located in Newport Beach, California.

Devin R. Lucas Real Estate
Real Estate Attorney | Real Estate Broker | REALTOR®
lucas-real-estate.com | devin@lucas-real-estate.com | BRE No. 01912302
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