Last Call to Prepay 2018 Property Taxes — and Maybe Save Money — Before New Tax Law Halts Unlimited Deduction

Tens of thousands of Texans could be looking to prepay next year’s property taxes by the end of this year to take full advantage of a break that will soon be curtailed by the massive tax revamp that just cleared Congress.Starting in January, the federal tax code will cap the deduction on state and local taxes -- such as property, income and sales levies -- at $10,000 a year. But that restriction doesn’t apply to the 2017 tax returns that will be filed in April.And so tax offices in Texas and beyond are busy this holiday season with taxpayers looking to maximize this year’s unlimited deduction via a property tax prepayment.“We’ve probably had 400 to 500 people inquire about it since last week,” said John R. Ames, Dallas County tax assessor/collector.Whether that strategy is viable depends on the taxpayer -- and the Internal Revenue Service’s eventual interpretation of the new law. Not all Texas counties have the same prepayment rules, though Dallas, Tarrant, Collin and Denton counties are among those allowing the practice.Collin County has permitted property tax prepayment for years -- an option seldom considered by taxpayers until now, said tax assessor/collector Kenneth Maun.“We normally have no one asking, but at this time we’re getting close to 100 information requests, and we’re getting some prepayments,” he said Wednesday.And the flurry of interest in prepaying next year’s property taxes belies the fact that relatively few Texans will be affected by the new cap.Texas has no state income tax, which means the state and local perk is less important there than in states like New York and California. Nearly one in four Texas taxpayers took the deduction in 2015 for average break in taxable income of $7,824, according to the latest IRS data.In Dallas County, only about 6 percent of 687,000 residential accounts owe more than $10,000 in property taxes this year, Ames said.But the deduction is a big deal to wealthier Texans with heftier tax bills.The income groups for Texans who earn at least $200,000 a year in 2015 featured average state and local deductions of over $10,000 a filer -- and in some cases, well over. And while that group represents less than 4 percent of Texas taxpayers, it’s a lot of money at stake.“The people it’s a slam dunk for are the people who pay a lot of property taxes,” said Wade Chessman, a Dallas-based financial adviser who this week mailed in his own property tax prepayment for next year.The GOP’s tax revamp, passed this month, goes into effect in January. And that quick turnaround has set off a scramble.The state of play will be different for every taxpayer. But among the factors to consider: Tax rates are going down next year. The standard deduction is increasing. And some itemized breaks are losing part of their punch.Take the charitable deduction.The break is preserved under the new law. But the boosted standard deduction means that fewer people will itemize, effectively limiting the perk’s tax benefits. And the fact that tax rates drop next year also means that the deduction is worth more money this year.That dynamic has caused some nonprofits to encourage their donors to give now. Many financial advisers are recommending the same.“The unified professional answer across my peers is accelerate deductions for 2017 (higher taxes) and defer income for 2018 (lower taxes),” Gregory Gardner, a Dallas-based financial adviser, wrote in an email.The state and local perk, however, has come under the closest study.Some Republicans had wanted to delete the deduction altogether, part of what had been a general push to ax certain breaks in exchange for lower rates. But GOPers in high-tax states like New York and New Jersey helped win the preservation of at least a $10,000 version.And that set the stage for gamesmanship -- a prospect lawmakers didn’t ignore.The GOP’s tax bill included a specific prohibition on the prepayment of next year’s state and local income taxes in order to deduct them on this year’s taxes. But the 500-plus-page legislation was silent on prepayment of state and local property tax.The IRS could determine that property tax prepayments also won’t work, experts said. But many financial advisers said it was worth the gamble.“If they wanted to not let people do that, why didn’t they say it?” said Chessman, president of Chessman Wealth Strategies.That doesn’t mean every taxpayer in Texas should be rushing to cut a property tax check.It’s up to each county to determine whether prepayment is even allowed. Tarrant County tax assessor/collector Ron Wright, for instance, announced last week that his office would allow the practice “for a limited time” to accommodate taxpayers through the end of the year.Denton County tax assessor/collector Michelle French said the county decided Wednesday that it will accept prepayment as an escrow arrangement in which the taxpayer makes a balloon payment in December, followed by smaller monthly payments through September. Taxpayers must visit any of the county's six tax offices. Counties that allow prepayments might not be able to process them online, so taxpayers should check with their local tax authority. Taxpayers in Dallas and Tarrant counties who choose to prepay next year’s property taxes can do so by visiting a local tax office or mailing a check by Dec. 31.And if you make a prepayment in Dallas County, you can’t ask for your money back in the following months if you change your mind, said Ames, the local tax assessor/collector.Officials in several counties agreed that making a prepayment won’t affect taxpayers’ ability to protest property valuations next year.But experts said taxpayers should also consider other factors.Taxpayers who’ve been itemizing their tax returns but expect to take the standard deduction next year will want to give prepayment close consideration. But taxpayers who’ve been paying the alternative minimum tax wouldn’t likely benefit from the tactic.Taxpayers who’ve been taking more than $10,000 in the state and local tax break could be primed to act before the year is up. But the exact calculations for such a decision will vary from taxpayer to taxpayer.And the bottom line is that time is running out.“Our clients are off enjoying their holidays,” said Katie Brewer, a Rowlett-based financial planner. “And it’s us interrupting them, ‘Hey, real quick.’”  Continue reading...