The Tax Cuts and Jobs Act significantly limits the amount an individual can deduct as an itemized deduction for state and local taxes. The maximum amount a taxpayer may claim as an itemized deduction is $10,000 ($5,000 for a married taxpayer filing a separate return) for the aggregate of (i) state and local property taxes and (ii) state and local income taxes (or sales taxes in lieu of income taxes).
Leading up to the House and Senate Conference Report, there was published commentary suggesting that taxpayers could prepay their 2018 state and local taxes and deduct these payments on their 2017 federal tax returns. Any uncertainty regarding this strategy was clarified by the Conference Report stating that "... under the provision, an individual may not claim an itemized deduction in 2017 on a prepayment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017".
Despite this restriction, there are a number of one time opportunities available with regard to prepaying 2017 income and property taxes before the end of the year. Even if you are subject to the restrictive Alternative Minimum Tax there still might be a benefit to prepaying taxes. And it should be noted that even though Congress is forbidding the prepayment of 2018 state and local income taxes, that restriction does not pertain to property taxes.
For more information on the new limitations and other Tax Cuts and Jobs Act items, contact your professional at UHY LLP at one of our many locations.
Wednesday, April 24, 2019 | 7:30 AM – 9:30 AM EDT | The Hartford Club