With the provisions of the new tax cuts and jobs at going into effect next year doesn't make sense for taxpayers to prepay their property taxes before the end of this year. That is a question that's been asked all over the country as lines of homeowners hoping to save money have formed outside county offices. The IRS is now come out with a clarification which seems to leave some questions unanswered. Joining me is David Williams, chief tax officer for the stand in base company, Intuit. Welcome. >> Thank you. >> Tell us what changes in the new tax bill are prompting this move to prepay? How was the deduction for property taxes changing in 2018? >> Up until the tax bill was passed, people could conduct the state and local income and property taxes without any limits. This new tax bill imposes a limit on the ability of people to deduct state and local income and property taxes and that limit is $10,000. So it states that have IE taxes and high property taxes like California example that could have a significant impact on the ability upon people's taxes and their ability to deduct the real estate tax. >> You have to own like a million-dollar property to be affected by this change? >> Well, I think it depends on what kind of rates you are paying. Understand that the cap overall on both income and property added together is $10,000. So in a state like California there are a lot of middle income folks who have significant real estate who might be affected by this because they're adding together not only the taxes they are paying on the incomes to the state, but also the amount they're paying on the property that they own. >> Some people have tried to get around that cap IP paying their 2018 property taxes this year. What does the IRS have to say about that? >> The Iris came out this weekend said let us explain how this is going to work. If you have been assessed for property tax for 2017/2018, then prepaying it is okay. In California, for example, property taxes are assessed on a fiscal year basis. Instead of January through December, the fiscal year for property taxes runs from July through the end of June. July 2017 through June 2018. We all get pills in late August and it comes in two parts. Says pay half of it now or half of it by December and the other half in April. What the Iris said is as long as you can assess you been assessed if you prepay all that tax before the end of 2017 you can deduct it for this tax year. They also said that you can decide I know what my property taxes are going to be in 2018 and I'm going to pay those even though I don't have a bill. They said that is not allowed and they will not allow people to take that on their income tax as a deduction for this year. >> If you think you are one homeowner that may be affected by this deduction cap of $10,000, it would make the -- sense to prepay your property tax in San Diego. >> It probably would. You want to assess your personal situation. It is worth looking at. I'm hearing stories of people standing in long lines to make their payments. There are online options for doing this. Might be easier for them to go online and make that payment. >> Just to be clear, David, people are not trying to prepay their mortgages -- mortgage interest. >> Well, the limit on mortgage interest applies to new loans. Under current law you can have mortgages up to $1 million. Under the new law, you can only have mortgages up to $750,000 to deduct interest on it. The law grandfathers people already have their mortgages. There's no advantage to running out and prepaying your mortgage interest. >> People still have time to do other last-minute things to try to reduce their 2017 taxes. Can you remind us about those. >> There are not a lot of things that one can do. The tax bill contains a provision that is very explicit about prepaying your income tax. The biggest change that they're going to see is they will be far fewer people itemizing. The bill raises the standard deduction doubling it for most people and that means that today 70% of people do not itemize estimates. What does that mean for the taxpayer who try to figure out what is right for them? It means that the most likely thing that they will have to consider is whether or not to change the withholding for next year. They will face lower tax rates, have a higher standard deduction so they are unlikely to be itemizing. The question is should I change my withholding so as to increase the cash will bring the year? We are building a calculator on TurboTax to help people do that. >> In these last days of 2017 people have some options for making a charitable donation or an IRA contribution to try to a limit -- limit the taxes. >> You can always make charitable contributions or within limits you can make contributions to IRAs that allow you to reduce your tax bill. That is not different because of this tax bill, but those are things that people should consider. If you believe in your one of those people that will face a lower tax rate next year, there's nothing wrong with accelerating some of your charitable contributions so as to ease the tax burden for this year. >> I've been speaking with David Williams, chief tax officer. Thank you so much. >> You are welcome.
Homeowners are lining up in droves at local tax collection offices, hoping for one last chance to take advantage of a major tax deduction before it is wiped out in the new year.
In Hempstead, town Tax Receiver Donald Clavin said "thousands" of people packed his office Tuesday trying to pay their 2018 property and school taxes a year in advance.
"This is almost chaotic," Oyster Bay Tax Receiver James Stefanich told Newsday . He said homeowners began lining up in the cold an hour before his office opened.
Similar scenes played out at tax collection offices around the country in places with high local taxes.
The tax overhaul signed last week by Republican President Donald Trump puts a new $10,000 limit on the amount of state and local taxes people can deduct from their income when calculating their federal tax liability.
That new cap could translate into a tax hike of hundreds or even thousands of dollars in mostly wealthier, high-tax communities in California, Connecticut, New York and New Jersey and other states.
People in some communities are trying to effectively delay that hike for a year by paying their 2018 taxes in advance
The IRS said Wednesday that some homeowners who prepay local property taxes due in 2018 will be able to claim the deduction on this year's returns, but only if the taxes have already been assessed and billed. People can't guess at what next year's assessment might be, pay it now and claim a deduction for that amount.
"A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017," the IRS said on its website.
That distinction wasn't always clear to people flooding into local taxes offices after Christmas, or to the officials trying to help them. But most thought it was worth a try.
"I know later on it is going to hurt me," Scott Arbuse, of East Meadow, New York, said of the disappearing tax deduction as he waited to make a payment. "But at least I save some money now."
Across the country, Steve Sheffield made the same calculation as he went to pay his taxes in Sacramento, California.
"My accountant told me it was the thing to do," Sheffield told the Sacramento Bee. "Next year, I probably won't be able to itemize."
