TAX REFORM BILL
President Trump has been resolute in making the tax reform bill the hallmark of his first year in office. The House version was passed in mid-November with the Senate version being passed earlier this month by a narrow margin. The bill has since been in conference committee for reconciliation between the two versions. The committee members have struck a preliminary deal, which is scheduled to be released today. Congress could vote on the reconciled bill as early as next week and the President is hoping to have a bill to sign by Christmas. While still not certain, it is looking more probable that a tax plan could get passed. Let’s explore whether you should consider any year-end strategies that could help save you tax dollars today and not lose certain deductions under the new tax package.
STATE AND LOCAL TAXES (SALT) – INCOME AND PROPERTY
Under the current law, taxpayers who itemize their deductions can deduct taxes paid to state and local governments, including income or sales taxes, and property tax. The House and Senate bill had originally eliminated the state and local income tax and sales tax deduction, while leaving a capped $10,000 deduction for real property taxes. Under the new comprised bill, the proposed cap of $10,000 still applies but taxpayers will now be able to deduct up to this amount either for property taxes, state and local income taxes, or sales tax.
If you are not subject to the Alternative Minimum Tax (AMT) in 2017, and a combination of your state and local income taxes (SALT) and real property taxes are in excess of $10,000, you could potentially benefit by accelerating these payments prior to year-end.
Business owners, retirees, and self-employed individuals are likely paying estimated taxes. The deadline for estimated tax payments for the fourth quarter of 2017 is January 15, 2018. By paying your estimated state and local taxes before December 31st you could take full advantage of the tax deduction this year and not have these payments limited by the proposed cap in 2018. Likewise, if the combination of your state and local income tax and property tax deduction is above $10,000 you may also want to consider prepaying your property taxes due in 2018 before December 31st. You will want to check with your county office to see if and how this can be done. Prepaying property taxes will only be possible if you pay your property taxes directly and not through your mortgage company via escrow. Again, the above strategies will be ineffective if you are subject to AMT in 2017. AMT forces taxpayers to add-back the SALT deductions, thus offsetting any benefit.
Taxpayers concerned about losing out on deductions in 2018 should consult your tax advisor as soon as possible prior to year-end.
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