January 2018 – 2018 Tax Reform (1) – Property Tax

The 2018 tax overhaul has become official with President Trump signed into law on 12/22/2017. It is a significant tax reform since President Reagan in 1986. While the tax reform covers many areas, we will discuss in this article the change to state and local taxes (SALT) deductions.

Before the tax reform, property taxes are deductible with no cap on Schedule A line 6 if a taxpayer chooses to itemize deductions. However, under the act, state and local taxes are only allowed to deduct up to $10,000. State taxes include state and local income taxes and property tax. For a taxpayer with high property tax expense, to avoid the cap, it would be benefit to prepay 2018 tax in 2017. However, the 2018 property tax needs to be both assessed and paid in 2017 to be deductible on 2017 tax return. If a local assessment hasn’t determined a home’s property tax for 2018, it could not be deducted on 2017 tax return, even the taxpayer prepaid the tax.

For more information, please consult with your CPA.