Beware Christmas Gifts Coming in Large Packages… for many middle-class individuals, taxes will be rising in 2018. The Tax Cuts and Jobs Act signed into law on December 22nd is a big win for the president and a boon for corporations, but there is at least one provision in the tax bill that will be painful to some middle-class taxpayers. One quick tip – for those that are not subject to the Alternative Minimum Tax, do not wait until January 15th to make your estimated state tax payments for 2017; pay them this week to gain federal tax deduction before losing it in 2018.
Starting next year, your total state income and property taxes are limited to $10,000 for a married couple. Virginia state tax rates are 5.75%, so if your property taxes are say, $5,000, then at 5.75% you will max out on the remaining $5,000 when your income exceeds $87,000. If you make $300,000 in taxable wages, you could lose $12,250 in state tax deductions for your federal return, and it rises further from there. North Carolina will track about the same as Virginia, but for many other states, the loss will be greater than that. Sure, the alternative minimum tax may be mitigating some of this difference, and a few other new tax benefits may offset, but most likely your overall taxes will be higher next year.
As for prepaying 2018 state property taxes, the Internal Revenue Service cautioned Wednesday that not all property-tax prepayments can be deducted amid a rush of homeowners paying their 2018 property taxes before the Republican tax law takes effect in January. The IRS said property taxes that haven’t been assessed before 2018 won’t be deductible on 2017 tax returns. State and local law determines when property taxes are assessed and those dates vary by location, the IRS said. “A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017,” the IRS said in its advisory.
As for charitable contributions: it may be beneficial to write some of your 2018 contribution checks on December 31, 2017!
For more information on key elements of the tax reform bill, please see our newsletter article entitled “Landmark Tax Reform Bill Passes“.
