Scrambling To Prepay 2018 Property Taxes? Maybe You Shouldn't
ARI SHAPIRO, HOST:
Homeowners around the country are doing something unusual this week - rushing to pay their 2018 property taxes well before they're due. They hope to put off one effect of the tax overhaul that President Trump signed into law last week. It limits the amount of state and local taxes that can be deducted on your federal return. NPR's Jeff Brady reports that accountants are warning that not everyone should prepay their property taxes.
JEFF BRADY, BYLINE: Pity the accountants and tax office employees across the country who were hoping for a relaxing holiday.
(SOUNDBITE OF RINGING TONE)
BRADY: Call the Nassau County Department of Assessment in New York, and you're likely to hear this.
UNIDENTIFIED WOMAN: Please call back at a later time as all assessment assistance personnel are busy with other callers.
BRADY: Accountant Tracy Beveridge in Springfield, N.J., says what typically is a slow week for her is anything but this year.
TRACY BEVERIDGE: I don't remember the last time I went to the office the day after Christmas. And I was there at, you know, 8 o'clock this morning.
BRADY: The new tax law includes a $10,000 cap on the amount of state and local taxes people can deduct on their federal returns. For example, if you paid $24,000 in property taxes in the past, you could deduct all of that on your federal return. If you live in a state where income and property taxes are relatively low, this may not be an issue. But for many who live in higher tax states like California, New Jersey or New York, the cost of this change could run into the thousands of dollars.
VANESSA MERTON: I'm sending my checks in today.
BRADY: Vanessa Merton decided to prepay next year's property taxes now so she can deduct them on her 2017 federal return. She says growing up, her village of Hastings On Hudson north of New York City was a factory town. But a lot of wealthy people have moved in, and now property values are up.
MERTON: I'm fourth generation in this house. And it's a big, old house, very expensive to maintain and very expensive to heat. We don't heat it very much. I'm wearing three layers as I talk to you.
BRADY: Merton estimates this change could cost her $6,000 to $9,000 a year. She works as a law professor and also as vice chair of her local Democratic Party committee. Merton sees politics at play in the new law since most states with higher taxes tend to vote for Democrats over Republicans. Right now, though, she's focused on getting next year's tax payment in the mail by December 31.
Accountant Tracy Beveridge says not everyone should prepay their property taxes. And the best answer is not the same for everyone, especially for those who earn more than $83,800 and could be subject to the alternative minimum tax.
BEVERIDGE: If a client is in AMT - what they call an alternative minimum tax - there is no benefit to prepaying your taxes. It just negates the benefit. And you're just out the cash.
BRADY: And Beveridge says some people who would not be subject to the alternative minimum tax may trigger it if they double up on paying property taxes this year. Her advice is to consult with an accountant who can look over your previous return and offer advice. In the past few days, she's examined dozens of her clients' returns.
BEVERIDGE: Out of probably 80 that I've done already, I think four it has benefited.
BRADY: And Beveridge says prepaying only applies to property taxes, not income taxes. The law doesn't allow people to prepay those. Jeff Brady, NPR News.
(SOUNDBITE OF MOKOTO'S "PLANET A")