Big Changes for Property Tax with the 2018 Tax Reform, Even If You Prepaid
By now you’ve probably heard that the largest tax reform bill in 30 years has passed. While obviously this means we are in store for some changes in 2018, it leaves many home owners wondering how exactly they will be effected.
The new tax bill was passed very quickly for such a wide-reaching piece of legislation, which raised the concerns of many. While the bill will no doubt cause major change in 2018, it’s specific impact has been a subject of confusion for many taxpayers.
Finer details of the bill are still unclear, however the most apparent change for home owners is in the form of tax deductions. Next year there will be a new cap placed on the amount tax payers can deduct from their taxable income.
Historically, individuals were allowed to deduct any state or local taxes they paid the previous year (These taxes are most commonly in the form of income tax and property tax) However, effective in 2018 this deduction is limited to only $10,000.
The Washington Post gives a great breakdown of how this will affect tax payers…
“For instance, a household that pays $8,000 in property taxes and $12,000 in state and local income taxes currently can deduct $20,000 from their federal taxable income. If they pay an average 20 percent tax rate, that means they would save $4,000 on their overall tax bill thanks to the deduction.
But in April 2019, when they file their 2018 taxes, they could claim just $10,000 in state and local tax deductions. For simplicity's sake, if they are still paying a 20 percent tax rate, now they would save just $2,000 off their tax bill.”
Such a drastic adjustment to the tax code caused major concern in many home owners. This concern, fueled by the short timeline, lead to a bit of panic this holiday season. Many people believed that if they pre-paid their 2017 taxes, they would be exempt from this new tax code. Even though the bill was passed only 3 three days before Christmas, droves of taxpayers still put the holidays on hold to skate off to their local tax office. Accountant's phones were ringing off the hook with questions from concerned homeowners. Many professionals advised their affluent taxpayers to prepay, as it could potentially save thousands of dollars.
However, after the rush has died down, the IRS has announced these pre-payments may not be deductible at all. According to the IRS these pre-paid taxes will only count as deductions in limited instances. This comes as a shock to the scores of people who skipped festivities to line up in the cold at their local tax office. It's not all bad news as some people will still be able to reap the benefits of filing early. However, this announcement was a lump of coal in the stockings of many pre-paid tax payers.
No matter where you stand politically, it is important to know how the upcoming tax reform will affect you as a home owner. If you or someone you know may be in trouble with property tax, foreclosure, or any other real estate distress, we at BuyMyHouseColorado.com are here to help! We buy houses no matter what condition they are in or how complex the transaction may be.