Should I prepay my 2018 real estate taxes?
Over the last week I have received dozens of phone calls and emails from clients, friends, and family asking whether they should prepay their 2018 real estate taxes as a result of the recently passed tax bill. Unfortunately, it depends on each individual’s specific tax situation. There isn’t a blanket answer for everyone so I will outline the two scenarios in which it would not be. If you do not fit into those two categories, you may want to consider prepaying your real estate taxes.
Prepaying real estate taxes count as a credit on your 1040. Therefore, if your itemized deductions normally cap out (meaning you have more deductions than you are able to receive credit for), prepaying your real estate taxes would not benefit you. The chart below shows the income level at which itemized deductions begin to lose their credit value.
| Filing Status | Income |
|---|---|
| Single | $261,500 |
| Married Filing Jointly | $313,800 |
| Head of Household | $287,650 |
| Married Filing Separately | $156,900 |
Additionally, if you are subject to alternative minimum tax (AMT) you most likely won’t benefit by paying early either. An AMT is applied when your adjusted gross income reaches a certain level. It eliminates deductions in higher tax brackets to ensure that those in the higher bracket pay at least some tax.
| Filing Status | Threshold |
|---|---|
| Single | $120,700 |
| Married Filing Jointly | $160,900 |
| Married Filing Separately, Estates and Trusts | $80,450 |
However, in both of these scenarios you may still save state taxes. If the amount you pay in state tax and real estate tax (combined) exceeds $10,000, then you may save 5-8% on your 2018 state taxes.
The last factor to consider is how your locality handles prepayment of real estate taxes. Most allow you to pay your real estate taxes online so you will have until January 31 to do so. However, each locality is different so please be aware of the particular regulations involved.
If neither of these factors apply to you, then prepaying your real estate taxes would most likely be beneficial.
If you have any further questions about this matter, please send an e-mail to the office at office@nickacpa.com. E-mail is most efficient way to get a response as I will be periodically checking it all weekend. The office will be closed until Tuesday, January 2nd so you will not receive a response if you call or leave a voice message.