Last-minute tax planning opportunity for New Yorkers

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You have undoubtedly heard much grumbling from taxpayers in the great state of New York regarding the Tax Cuts and Jobs Act.

A quick recap of the pertinent element of the new law: the itemized deduction is capped at $10K for combined income tax or sales tax and property taxes.  Due to a combination of high income tax rates and high property taxes, this cap will be exceeded each year by many New York taxpayers, especially in the New York Metro and surrounding areas.  That, coupled with the fact that most taxpayers will be taking the standard deduction as a result of the elimination of most other itemized deductions, means the $10k limit on SaLT is no sweet deal for those of us living, working, and owning homes in New York State.

These changes go into effect for the 2018 tax year.  But a quick check of the calendar shows me that we are still in 2017, and therefore have time for last-minute tax planning.  New York’s governor, Andrew Cuomo, made use of his executive power signing an emergency order to allow local New York taxing authorities to bill for 2018 NY real estate taxes in 2017.  You can read the executive order here.

This executive order was a necessary step to ensure the IRS recognizes the pre-payments as deductible for 2017, as the pre-payment would otherwise not be a valid itemized deduction.  Under current law, a deduction is only allowed for amounts actually billed and payable.  So while it might seem at first glance that “allowing” us to pay our property tax early, would benefit only the receivers of tax, it is in fact a mutually beneficial arrangement.

Remember, these property taxes are an add-back for alternative minimum tax purposes, so as always, we recommend you consult your tax adviser, rather than diving into this tax planning opportunity on your own.  There is precious little time to waste!