Republican lawmakers joined President Trump on Wednesday, December 20, 2017, to celebrate their largest legislative achievement to date, currently named “The Tax Cuts and Jobs Act” (the “Act”). The Act makes several sweeping changes, including a provision that, effective in 2018, caps the amount of state and local income taxes and property taxes individuals may deduct on their federal tax returns at $10,000 ($5,000 for married taxpayers filing separately). Thus, homeowners should consider paying their property taxes that are due in 2018 before the end of 2017 to maximize their 2017 itemized deductions.
If a taxpayer is subject to the alternative minimum tax (“AMT”), prepayment may be of no benefit since some tax deductions are further limited or barred entirely by the AMT.
When it comes to prepayment itself, the process will likely vary from county to county since there is no Indiana statute on the subject. In Vanderburgh County, taxpayers may make an advance payment of up to one year’s property taxes by December 31 at the 2017 rate, which would then be credited towards their 2018 property tax bill. To do so, the taxpayer must designate that the payment should be applied towards prepayment of their 2018 property tax bill.
The Act also increases the standard deduction for married couples filing jointly to $24,000 and for single filers to $12,000, meaning that fewer taxpayers will itemize deductions in 2018 and later years. As a result, taxpayers who won’t be itemizing deductions in 2018 should consider making charitable contributions prior to year-end rather than waiting until 2018. In addition, for taxpayers who make quarterly estimated tax payments, consider paying your state 2017 fourth quarter estimated tax payment prior to year-end rather than waiting until the January 15, 2018, due date. Note that you cannot prepay your 2018 state estimated tax liability and receive a deduction in 2017.
About the Author
Mark S. Samila, a Co-Managing Partner at Kahn, Dees, Donovan & Kahn, LLP, in Evansville, Indiana, is a business attorney, Indiana Registered Civil Mediator and Licensed Certified Public Accountant (Missouri) whose practice includes tax and estate planning, financial services including bank and bond financing, creditors’ rights, workouts and bankruptcy and business law. Mark blends his accounting and financial background with his legal experience. In so doing, he provides legal analysis and also understands and considers the business and financial implications of a client’s legal options.