Q. How will the tax plan affect the property tax deduction, which is especially important for those of us in New Jersey?
A. The new tax plan is causing a lot of angst for New Jerseyans because so many people pay high property taxes.
Starting in 2018, you can only deduct a maximum of $10,000 for property, state and local income taxes.
“This is in total and not for each category,” said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton. “Therefore if your property taxes are $6,000 and your state income taxes $5,000, you would be limited to a total deduction of $10,000.”
A few factors will determine how this will affect you.
Hook said if prior to the change you were deducting an amount higher than $10,000, it will reduce your deductions and may even result in you having to take a standard deduction.
“However, tax rates have come down as well so while your deductions may be less, you still may pay less in tax if your income is taxed at a lower tax bracket under a new law,” Hook said. “The answer is different depending upon your individual circumstance.”
That’s why now is a great time to check with your tax preparer about your specific situation.
** Addition on Dec. 27: Despite Gov. Christie’s executive order requiring that municipalities in New Jersey allow homeowners to prepay 2018 property taxes (as long as the payments are postmarked by the end of the year, which is Sunday), the IRS has issued guidance that only taxes that have been assessed by municipalities may be prepaid and deducted for 2017. Tax experts are still debating whether that means you can only deduct prepaid taxes that have been billed. Stay tuned for more.
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