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Prepay Property Taxes in 2017 and FINANCE for larger refund?

1,424 659 December 22, 2017 at 06:43 AM in Finance
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Hello,

In 2018 I'll be using the standard deduction and I won't be able to deduct the state, local,and property taxes (which are capped at $10K anyhow), I'm considering making a HUGE property tax payment that will cover multiple years.

I'll have to finance it but my tax refund (due to the deduction in 2017) will easily cover the interest with some money to spare. I've checked and the county will carry a surplus in my account for the over-payment.

Think this is a good idea? If so, what's stopping me from reducing my tax bill to zero doing this?

Thanks,
Jason

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#2
Quote from Lakee911
:
Hello,

In 2018 I'll be using the standard deduction and I won't be able to deduct the state, local,and property taxes (which are capped at $10K anyhow), I'm considering making a HUGE property tax payment that will cover multiple years.

I'll have to finance it but my tax refund (due to the deduction in 2017) will easily cover the interest with some money to spare. I've checked and the county will carry a surplus in my account for the over-payment.

Think this is a good idea? If so, what's stopping me from reducing my tax bill to zero doing this?

Thanks,
Jason

I would only do what you can for 2018 (if you do any at all...consult with your accountant). First off, if you move and want a refund, it could take forever. Second, the law could change again. Third, you could lose your job or have some other issue come up where you need the money or your income is much less and the prepayment is not buying you much. And fourth, taking out a loan to pre-pay taxes is just plain crazy imo.
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#3
Quote from Lakee911
:
Hello,

In 2018 I'll be using the standard deduction and I won't be able to deduct the state, local,and property taxes (which are capped at $10K anyhow), I'm considering making a HUGE property tax payment that will cover multiple years.

I'll have to finance it but my tax refund (due to the deduction in 2017) will easily cover the interest with some money to spare. I've checked and the county will carry a surplus in my account for the over-payment.

Think this is a good idea? If so, what's stopping me from reducing my tax bill to zero doing this?

Thanks,
Jason
How precisely can you pay property tax for multiple years? Out here while I can prepay the my Apr, 2018 portion early in 2018 that's it. I can't pay the Oct, 2018 invoice (as they haven't issued it yet) nor can I pay 2019 or beyond.
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#4
I would be cautious. The IRS generally does not like excessive pre-payments.

Year End tax moves [nextavenue.org]

From the article -

""The IRS standard is that if you know what you owe, you can prepay," says Luscombe"

Also, be conservative. "The IRS has issued no specific guidance on this, but has generally frowned on excessive pre-payments," says Luscombe, adding that one-to-three-months' worth is a "comfortable range."

On a related note, I was thinking of stopping my auto-pay of mortgage and prepaying 3 months of it manually. Thoughts ?
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#5
I don't see the point to this. The blue states are already working on solutions to the red tax plan. Specifically in terms of property tax, about half of property tax goes to fund schools. So they are re-classifying schools as 501(c)(3), charities. Thus you will be able to deduct at least half your property tax as a charitable deduction. They are working on the other half. Just like state income deduction, they can also make the state a charity so that your income tax will be deductible as well.
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#6
Quote from lanb
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On a related note, I was thinking of stopping my auto-pay of mortgage and prepaying 3 months of it manually. Thoughts ?

I would just pay directly against principle, not pre-pay the mortgage. Missing the forest through the trees if you prepay to deduct interest as opposed to draw down the principal to save having to pay interest on that principal over many years in the first place imo.
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Quote from YanksIn2009
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I would just pay directly against principle, not pre-pay the mortgage. Missing the forest through the trees if you prepay to deduct interest as opposed to draw down the principal to save having to pay interest on that principal over many years in the first place imo.
Well the idea is to pre-pay the 3 months and then not have to pay mortgage for the next 3 months.
Prepaying principal is a whole different saving strategy which is not what I am after with this.

The wrinkle may be to have the mortgage company recognize these as pre-payments of the
mortgage and not mark the mortgage as late in feb and mar Smilie

Paying just the Jan mortgage in Dec may be easier.
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#8
Quote from ghostofposterspast
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I don't see the point to this. The blue states are already working on solutions to the red tax plan. Specifically in terms of property tax, about half of property tax goes to fund schools. So they are re-classifying schools as 501(c)(3), charities. Thus you will be able to deduct at least half your property tax as a charitable deduction. They are working on the other half. Just like state income deduction, they can also make the state a charity so that your income tax will be deductible as well.
Ha ha, let the games begin.

This country is going to be so divided in the next 5 years, it won't even be funny anymore.

Watch out for regional politics and coalition governments at the federal level [ the rest of the world is already there Smilie ]
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#9
Quote from lanb
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Well the idea is to pre-pay the 3 months and then not have to pay mortgage for the next 3 months.
Prepaying principal is a whole different saving strategy which is not what I am after with this.

The wrinkle may be to have the mortgage company recognize these as pre-payments of the
mortgage and not mark the mortgage as late in feb and mar Smilie

Paying just the Jan mortgage in Dec may be easier.

You will be far better off paying whatever principal you can in advance rather than paying the mortgage payments in advance. The interest you can deduct at whatever your marginal tax rate is is going to pale in insignificance against the interest accrued over decades on the same payment amount. Yes you have to pay in addition to your current payment, but if you have the cash around to pay 2-3 months of your mortgage in advance, then you should have the ability to pay a sizeable portion of that as direct to principal and draw down the loan as well assuming you are not living paycheck to paycheck. If not, then it is another story entirely obviously.
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#10
I dont impound my property taxes. I get hit with $15k property taxes a year. I signup for two big signup bonus credit cards like amex plat or chase ink and put the payments on them. I get hit with a credit card fee of 2% but also getcash/points worth $3,000.

Only do this if you are financially responsible and can save money throughout the year
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#11
Can you get a bill to pay my property taxes change every year so not sure if I could even prepay mine.
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#12
Quote from lanb
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Ha ha, let the games begin.

This country is going to be so divided in the next 5 years, it won't even be funny anymore.

Watch out for regional politics and coalition governments at the federal level [ the rest of the world is already there Smilie ]
One can hold out hope for coalition governments and the power of regional governments. Did you see that press conference with all the Republican leadership the other day? I don't think they praise the great leader in North Korea as much as we do now in the US. The US is just another banana republic.
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#13
OP should run the #'s. I don't see how this can really make much sense unless OP is swimming in cash (they indicate they need to finance it, so that probably isn't the case).
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#14
Aside from any IRS determinations about "excessive" pre-payments referred to above, you need to beware AMT.

If you have too many excluded deductions (primarily state and local taxes) you'll find yourself paying the Alternative Minimum Tax.

It makes sense to pre-pay as many allowable things as you can (primarily local property tax - state and local income taxes won't work) up to the point where AMT kicks in.

If you won't be itemizing next year, it also makes sense to make 2018 charitable contributions before the end of this year. (These won't affect AMT, btw.)
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#15
Only worth prepaying a couple years worth.
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