With a new federal tax law set to take effect Monday, many Americans are now asking if they can prepay property taxes for 2018 before they lose the ability to deduct the entire bill on their federal taxes, according to ABC. With the new Republican tax law, deductions for state and local income and property taxes cap at a combined $10,000. Homeowners in states with high property taxes are therefore in a rush to pay now and save later by taking advantage of the federal deduction one last time before it's scaled back under the tax-code overhaul.
In short: The new law that was approved by Congress last week and signed by President Donald Trump on Friday isn't exactly ideal for residents in states like New Jersey with high property taxes. And a lot of homeowners are making moves — last year there were 1,700 or so property tax prepayments, but this year there have been nearly 48,000 so far, a 26-fold increase, according to ABC.
"If I could prepay half of my property taxes for next year, to take advantage of it this tax year, based on what my accountant’s told me, I would save almost $1,000," New Jersey resident Wayne DeFeo said during PBS Newshour. "And that goes to my pocket."
The tax law explicitly states that the $10,000 deduction cap cannot be avoided by prepayment of 2018 income taxes but it doesn't mention whether this applies to prepaid property taxes, according to The Washington Post.
The IRS responded to a flood of questions on Wednesday stating that, in order to claim that deduction, you have to have received a property tax bill. In other words: You can't just pay an estimate, so filers could only avoid the cap by paying property taxes that have been assessed, billed, and paid in 2017. And many local governments, including most Washington-area jurisdictions, have not yet completed assessments for upcoming years, The Washington Post reported. That said, counties across the country have different laws and timelines for assessing property taxes, which means that it'll be difficult for the IRS to enforce anything. Technically, you can prepay your 2018 property taxes, it seems.
But, prepaying doesn't necessarily make sense for some homeowners — especially for those whose itemized deductions are less than the new standard deduction of $24,000 for married couples or $12,000 for individuals, according to ABC.
While Kenneth DeGraw, a partner at national public accounting firm WithumSmith+Brown, told NorthJersey.com that, if you've got the means to do so, you generally should prepay your property taxes for 2018, he does warn some homeowners against doing so. Anyone who falls under the alternative minimum tax, which is a parallel tax system that traps many middle-income earners, won't benefit from prepaying.
Plus, NorthJersey.com also pointed out that, while homeowners are smart to do whatever they can to save some money in the short term, without a legislative fix, this is, "at best, one-shot relief." Homeowners won't be able to prepay property taxes in perpetuity, and Congress will inevitably have to address this issue in January 2018.
In essence: This new tax bill, which Trump signed off in a rush before shipping out for his Florida estate, Mar-a-Lago, for the holidays, is confusing. What we do know for sure is the average homeowner in the United States already pays $3,296 in property taxes — and, in New Jersey, for one, that number climbs to $8,549, according to the nation’s largest property database, ATTOM Data Solutions. We also know that blue states will be hit hardest by the deduction, as they're typically the states that have higher taxes, according to The New York Times.
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