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2017 Year End Planning Tips for State and Local Income Tax & Property Tax Deductions

New Legislation Impacts State, Local, and Real Estate Taxes

State and local income tax and property tax question  
A common question is what possible action should be taken by December 31, 2017 regarding state andWeller_1200s.jpg local income taxes and property taxes. The new legislation will nearly double the standard deduction in 2018 which could result in some taxpayers not having itemized deductions, including deductible taxes, greater than the standard deduction. In addition, for taxpayer that will still be able to claim itemized deductions, the new law will limit the overall tax deduction for personal state and local income taxes plus property taxes to $10,000. 

Should you prepay state and local income taxes before 12/31/2017?
Some taxpayers may benefit from accelerating their 2017 4th quarter estimated state income tax payment, and possibly also their estimated final balance due, into 2017.  However, watch out for alternative minimum tax (AMT).  AMT is a supplemental income tax imposed by the United States federal government required in addition to baseline income tax for certain individuals, corporations, estates, and trusts that have exemptions or special circumstances allowing for lower payments of standard income tax.  Since no taxes, income or property taxes, are deductible for AMT purposes, if you are subject to AMT there will be no federal tax benefit from accelerating the state and local income tax payment into 2017. It may be difficult to tell if you will be subject to AMT for 2017, however, checking to see if AMT applied in 2016 may be a good indicator.

No deduction for prepayment of 2018 state and local income taxes!  Please be aware that the proposed legislation has made it clear that you cannot deduct in 2017 the prepayment of 2018 state and local income taxes. 

How about the prepayment of 2018 property taxes?
It is important to note that the proposed legislation only prohibited the 2017 deduction for the prepayment of 2018 income taxes. There appears to be no restriction on the prepayment of 2018 property taxes. Therefore, after researching this further, we do believe prepayment of 2018 property taxes would be a viable deduction in 2017.  However, the client should check with their locality/tax collector if they allow prepayments before doing so.  Also, again, watch out for AMT.

Article compiled by Stacy A. Weller.