21 Dec Should I prepay my 2019 property taxes?

Q. Can I prepay my property taxes to help with deductions in any way? Or has that ship sailed?
— Taxpayer

A. This time last year, prepaying property taxes was a hot topic.

That’s because homeowners were trying to race against time to get a full deduction for state and local taxes, commonly called SALT.

At the start of 2018, taxpayers could only deduct up to $10,000 – far below what some New Jerseyans pay on their property tax bill.

So as you said, that shipped has most likely sailed, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

But, he said, depending on your specific situation, you could still get a benefit if you are a New Jersey resident.

Let’s start at the beginning.

The SALT deduction, which includes income taxes, real and personal property taxes and/or sales taxes, limits this deduction to $10,000, and it’s $5,000 for those married filing separately, Papetti said.

“At the end of 2017, the IRS issued an advisory to address prepaying of property taxes which states that ‘a prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017,’” Papetti said. “For New Jersey residents whose property tax assessments are made on a fiscal year commencing with July 1 and ending June 30, the final two quarters of the fiscal year, which are for the following tax year, have been assessed and should support the ability to deduct them in the current tax year.”

Now comes the question: Does prepaying 2019 property tax bills that have been assessed help reduce your income taxes in 2018?

Papetti said you have to ask yourself whether the total of your income taxes and property taxes paid in 2018 is greater than $10,000.

If it is, then no benefit will be received by prepaying property taxes, Papetti said.

But if your SALT is less than $10,000, you need to determine if, when combined with other itemized deductions such as medical, mortgage interest and charitable donations, the total exceeds the standard deduction you are entitled to based on your filing status, Papetti said.

As with prior tax law, the new tax law allows taxpayers to reduce their adjusted gross income by the greater of their itemized deductions or the standard deduction, Papetti said.

He said the change in the standard deduction is significant and for many taxpayers, it may offset the loss of the SALT deduction in excess of $10,000, the suspension of casualty and theft losses and the suspension of miscellaneous itemized deductions.

“Most likely if you live in New Jersey and own a home, the combination of state income taxes and property taxes will exceed $10,000, so no benefit will be received by prepaying next years assessed property taxes,” Papetti said.

One bright spot? New Jersey, which had already limited the deduction to $10,000, has increased the number to $15,000 for your state return.

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