Homeowners in states with the very best property taxes
are trying to prepay 2018 bills beforehand of a $10,000 cap on the deduction for state and nearby levees, such as assets taxes, within the GOP tax overhaul President Donald Trump just signed.
In New York, citizens are peppering local officers with questions about how to prepay their 2018 belongings tax bills inside the modern year in the desire of deducting them from 2017 taxes, the New York Times reports.
In New Jersey, kingdom Senate President Stephen Sweeney has asked Republican Governor Chris Christie to make it easier for citizens to pay their whole 2018 belongings-tax bill by December 31. Jersey City Mayor Steve Fulop, a Democrat, additionally wants his network throughout the Hudson River from New York to allow homeowners to prepay their whole 2018 payments as opposed to just two quarters, in keeping with the Star-Ledger of Newark.
“The extra tax financial savings we are able to offer New Jerseyans via maximizing the deductibility of property tax prepayments does now not remove from the prejudice of the pink-nation tax bill that sharply curtails the deductibility of country and nearby income taxes that has been a staple of the federal tax code for the reason that enactment of the profits tax in 1913,” Sweeney, a Democrat, said in a declaration.
In the Washington D.C. Suburbs, WTOP discovered a line of masses snaked via a neighborhood authorities constructing in Fairfax, Virginia, seeking to prepay their 2018 payments. Fairfax County officials, strained by the crowds, are telling people to wire the money instead. In close by Arlington County, Chief Deputy Treasurer Kim Rucker informed local tv station Fox 5 that the extended pace of citizens seeking to cover 2018 tax bills ahead of the yr has precipitated hundreds of calls in the course of the usually quiet Christmas duration, and dozens of prepayments an afternoon.
The tax regulation, enacted just before Christmas,
has brought about some nearby governments to revise their regulations in a bid to facilitate the last-minute exchange of federal tax strategies. The Bernard Law Montgomery County Council in Maryland broke its wintry weather recess to pass an invoice allowing residents to prepay 2018 taxes, the Washington Post pronounced state farm explanation of coverage what does uninsured motorist cover.
In Washington D.C., Democratic Mayor Muriel Bowser’s workplace placed out a guide to early prepayments for town citizens. Zillow places the median currently listed domestic rate at $550,000 within the country’s capital, meaning the various city’s listing homeowners might be laid low with the cap. Bowser, in an assertion, vowed to apply “every device in our toolbox to shield Washingtonians from the poor influences” of the new regulation.
The Alternative Minimum Tax is a very important consideration for taxpayers who own real estate because just about every tax rule applying to real estate is different for the AMT than it is for the Regular Tax. This article on Real Estate and the AMT will address those situations where the individual holds the real estate as an investment, typically as the rental property. The differences in tax treatment between the Regular Tax and the AMT can be significant.
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Interest paid on the mortgage was taken out to acquire the property is fully deductible, both for the Regular Tax and the Alternative Minimum Tax. Unlike itemized deductions that allow a tax benefit for what amounts to personal expenses, the tax law generally allows all deductions a taxpayer has to make in the pursuit of business income. Thus, the limitations discussed in the previous article on home mortgage interest do not apply.
If, however, the equity in the rental property is used as security for an additional loan – a second mortgage, for example – then the taxpayer must look to how the proceeds of that loan are used to determine interest deductibility. If the proceeds are used for a car loan or to finance a child’s education, for example, then the interest is nondeductible personal interest. If the proceeds are used to improve the rental property, the interest is deductible.
Suggestion – it is best that taxpayers keep personal borrowings separate from business borrowings. Mixing the two creates recordkeeping challenges and can result in disputes with the IRS.
Property taxes paid on rental or investment property are allowed in full both for Regular Tax purposes as well as for the Alternative Minimum Tax.
Planning idea – if you have an opportunity to pay your property tax bill either this year or next, pay it in a year when you have enough income from the property so as not to generate a rental loss. This strategy can help avoid triggering the passive activity loss limitations described below.
Example – in Florida property tax bills are mailed in October, and are payable under the following discount schedule: November – 4%, December – 3%, January – 2%, February – 1%. If you have a loss from the property in 2010 but expect to generate income in 2011, do not pay your bill in November or December – forgoing that small discount could help you avoid the loss-limitation rules.
Depreciation is allowed for property held for investment. The portion of the cost allocable to land is not depreciable, but for the building itself and the furniture, appliances, carpeting, etc. a depreciation deduction may be taken.
Real property (this is the legal definition of the house or other building) held for rental/investment may only be depreciated for Regular Tax purposes under the “straight-line” method, over a useful life of 27.5 years. Thus, a property with $275,000 allocated to the building would be depreciated at the rate of $10,000 per year.
Personal property (this is the legal definition of things such as furniture, appliances, carpeting and the like) may be depreciated for Regular Tax purposes under an “accelerated” method over a useful life of five years. An accelerated method allows a larger depreciation deduction in the early years, in recognition of an obsolescence or decline-in-value factor that you see in new property (cars are a good example).
For purposes of the AMT, however, personal property may be depreciated only by using a straight-line method. Thus, an AMT item will be generated in the early years if the accelerated method is used.
Planning idea – for personal property consider electing the straight-line method for Regular Tax purposes. While giving up a little tax benefit from the greater depreciation in the early years, it could mean avoiding paying the AMT.
Active/passive investment rules and the “at-risk” rules