The Tax Cuts and Jobs Act: State and Local Taxes

          The new Tax Law and Reforms of December 2017 have created some new situations that Taxpayers need to adjust to. Now that there is firm limit of $10,000 on any deductions made on a Tax Return that come from State and Local Taxes (SALT), many have been rushing to prepay taxes and expenses in 2017 that would exceed the new limit. This will be legal for estimated 4th Quarter 2017 earnings and what will appear on the 2017 Tax Return. With that understanding, it must be noted that Congress has specifically said it is prohibited to make prepayments for income tax, to be used as SALT deductions. This will also apply to any earnings in 2018. One loophole has been closed.

          However the same cannot be said for Property Tax. In fact, there was nothing stated on the matter at first. This led many to rush to prepay for 2018. Now the IRS has weighed in on this area. Their answer is a clear “Yes” or “No”, but it depends on where the property is located. If the Local or State agency responsible has assessed the Tax in 2017 for 2018 then it can be prepaid, with no hit against that $10,000 limit, probably. If not, then it will not be a way to get around the deduction limitation.

          Everyone needs to keep in mind that every municipality handles the assessment of taxes differently. It is a very fine line that is going to be drawn in this area of finance. It may even be the case that prepayment might not be the choice for you. At Anthony Sykes & Co, we are here to help you steer these uncharted waters and fine the best solution for you.

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