So the Republicans’ awful tax bill is now law, signed by Donald Trump amid warbling compliments from his GOP lackeys. How do those in Blue states with state income taxes overcome the hit from the $10,000 limit on what you can deduct from your federal taxes when it comes to SALT, your state income and local property taxes? These new rules primarily hit those with higher state and property taxes, especially in New York, New Jersey, California, and Illinois.
One suggestion is to pay some of next year’s property taxes before the end of 2017, if you’re able to do so.
Yes, that’s laughable for those living paycheck to paycheck. It’s also holiday time, when people are buying gifts, incurring expenses to travel to see loved ones, and making tax-deductible gifts to charities.
But if you can swing it, you can maximize deductions this year. Next year, your limit is $10,000. This year, there is no limit.
Officials in Blue states are realizing that such an approach is one way for taxpayers to save money for at least one year. (It also boosts their coffers for at least a few months.) This is how our township assessor, Ali ElSaffar, of Oak Park Township in suburban Chicago, put it in an op-ed explaining the process in our local paper, The Wednesday Journal:
As an official in local government, I would like to think that the sudden uptick in early-bird taxpayers is motivated by a surge in support for the good work done by tax-supported local governments. But I know better.
In Cook County, where we live, the first installment of property tax bills is typically mailed out at the end of January and is due by March 1. So by paying taxes now, we are paying two months early. We are parting with the money sooner than we would normally, but this way we can take the full deduction. Most counties allow online payment.
We said “OUCH” but we wrote the check. Our property taxes are high, mostly because of our schools. We are primarily a residential village with little business tax revenue, but we keep saying it’s the price you pay for living in an area with educated citizens.
Various media (in Blue states, at least) are covering this angle. I’ve seen stories about property tax prepayment in The New York Times, The Los Angeles Times, the Chicago Tribune, and more. I’m sure there are other stories, too.
If you fall into this category and will lose some of your SALT deductions next year, check with your local property tax officials about prepayment. If you can afford it, if your state allows it, and if you have high property taxes, it’s to your benefit to at least check it out.
Prepaying property taxes is the biggest piece of advice across the board. Other tax tips (these are from CNBC):
- If you plan to take out a new mortgage or refinance an existing one, do it before the end of the year. Mortgage interest deductions will be capped, but existing mortgages will be grandfathered in.
- Check with your broker or financial adviser, as I don’t know exactly what made it into the final bill (does anyone?). But one provision from the Senate bill was called FIFO, or “first-in, first-out,” so that, when selling securities, investors must sell shares in the order that they bought them. That’s not always financially advantageous, as it was a way of minimizing capital gains. “Harvest your losses now from select lots while you still can,” was CNBC’s advice.
Tax experts will know more about this, and I’m sure we’ll be finding out more as the details of this new law are sifted through. Any CPAs or tax experts out there, feel free to weigh in.