On their Wednesday guidance, the Internal Revenue service upended many homeowners plans of paying their 2018 property taxes early before the new tax law takes effect in January. If you’re one of the many considering prepaying, or if you have prepaid, here are a few important things to keep in mind:
Check your tax-assessment dates
Makes sure your local tax office has already assessed your property for 2018. If you have already received a bill due for 2018, it makes more sense to pay it now if you want to claim the federal deduction.
In jurisdictions that have already assessed properties but not sent the bills, it creates many gray areas. Some locations where this occurs says taxpayers may qualify for the deduction by paying before the year is up, but it is still not clear if the IRS will agree to that.
Beware the AMT
If you plan to prepay, make sure you wouldn’t become eligible to pay the alternative minimum tax. The AMT is a separate tax system that was originally designed to prevent people from using legal tax breaks to avoid all taxes that largely applies to any higher-income households.
If prepaying your 2018 property taxes causes your federal tax deductions to increase. You may hit the threshold that would require you to pay the AMT. Furthermore, if you already will be paying the AMT, prepaying your property taxes may provide little to no benefit.
Make sure state and local tax bill is high enough
Determine whether your total state and local tax bill next year will exceed the $10,000 cap. If you consistently paid less than $10,000 in state and local taxes, you will probably still be able to deduct the full amount you pay in your state and local governments.
Depending on your individual tax situation, you may prefer the standard deduction for 2018, which was raised to $12,000 for individuals, $18,000 for heads of household, and $24,000 for married couples filing jointly.
Speak with your mortgage provider
A lot of homeowners pay property taxes through an escrow account set up by the mortgage provider. Then, they send the one monthly payment to the mortgage company which takes care of paying the necessary taxes.
If this describes your situation and you want to prepay your taxes, speak to your mortgage company first so you don’t end up paying twice the taxes.
Talk to a professional
Just talk to your tax adviser. Circumstances can vary by household and somebody who knows your situation is probably going to be the best option to give you relevant advice.
To learn more about the new tax law or how to prepay your taxes, visit Realtor.com for similar articles.