We haven’t blogged much about the new tax bill in part because it’s been unclear what the final version will look like. Putting aside criticisms of the process, I thought it would be good to point out that there may be no benefit to prepaying your state and local income taxes before December 31. The tax bill that’s just out of conference and to be voted on this week limits state and local tax deductions in tax years 2018 through 2025. Some clients have asked me whether they could prepay their 2018 state and local taxes now so they could be deducted in 2017. Proving that they don’t like us northeasterners all that much, Congress has has built in ‘anti-abuse’ provisions into the conference report.
However, it does not appear that local real property taxes are covered under the anti-abuse provisions. Your local assessor will be happy to accept your check for your 2018 real property taxes. It is not clear if the IRS will allow the deduction on your 2017 federal return. Clients should discuss the impact of this provision with their tax professional.
The provision is found at Page 88 of the conference report:
“(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 2016.”
UPDATE: This post has been updated to reflect the different treatment of state income taxes and real property taxes.