Property Tax Strategy

[Snaggletoof]

Timing of property tax collections in Tennessee are governed by state law. The tax collections are always in arrears, e.g. the 2008 state fiscal year taxes are due on October 1, 2008, payable until February 28, 2009, and then delinquent after that date.

Veronica uses "bunching" strategy for itemized deductions. She paid $950 for her 2008 taxes on February 27, 2009, and then paid $1000 for her 2009 taxes on October 2, 2009.

If she were to itemize deductions, the bunching strategy would allow her a $1950 property tax deduction for 2009. However, she has only $10,000 in other itemized deductions and her standard deduction MFJ for 2009 is $11,400. This means she will only receive the benefit of a $550 deduction by itemizing.

However, the new stimulus legislation allows "above the line" deduction for property taxes for the year 2009 only. Not sure, however, the extent to which the deduction may be used.

How much of the "above the line" deduction is she entitled?

a. $1950 because she paid this much during 2009 on a cash basis, leaving her the std deduction.
b. $1000 because this is the amount attributable to 2009 only, leaving $950 for Sch A or std deduction whichever is greater.
c. $1400 because this is the amount of deduction "lost" to the itemization threshhold, i.e. $10000 + $1950 = $11950 - $11400 = $550 and $1950 - $550 = $1400. (If the concept of "losing" to itemization threshold is a little foggy, consider the state income tax deduction benefit worksheet).

[DaveO]

I vote "A", as she is cash basis and that's the amount paid.

[thomtax]

Agree with DaveO

If she is cash basis, it would appear that whatever cash she paid is the deciding factor.

LT

[Gretel]

Isn't this deduction limited to $500/1,000 - single/MFJ anyway?

[taxxcpa]

Limit

Isn't this deduction limited to $500/1,000 - single/MFJ anyway?

You must be thinking about the limit to deduct property taxes without itemizing.

[thomtax]

If I understand page 4-10 of TTB correctly, this limitation is for when you are adding to the standard deduction.

LT

[Jesse]

As cash basis taxpayers they would be able to take the entire $1,950 property tax paid, but if they only have other itemized deductions of $10,000 + $1,950 = $11,950.

Even though it is 2008's property tax, since paid in 2009 she can still take $1,000 of the $1,950 property tax deduction and add it to the standard deduction of $11,400 for a total deduction of $12,400. Correct?

[AuditorTurnedGood]

Where is this

However, the new stimulus legislation allows "above the line" deduction for property taxes for the year 2009 only. Not sure, however, the extent to which the deduction may be used.

in the new legislation? I don't remember seeing an above the line for property taxes, though I do remember an above the line for sales tax on a new car.
ATG

[Jesse]

I believe they extended the 2008 property tax deduction to 2009, not 100% sure, I'll double check.

[Bees Knees]

use of term above-the-line

The property tax deduction is not an above-the-line deduction. An above-the-line deduction is something like the new sales tax deduction for cars. You get that deduction regardless of whether or not you itemize for other deductions.

The property tax deduction adds to the standard deduction. You either take the standard deduction along with the property tax deduction, or you itemize.

There is a difference.

[Jesse]

I stand corrected and apologize for the confusion.

With that said, is there something new for 2009 as far as an above the line deduction for property tax paid?

Is the addition of property tax to the standard deduction available for 2009? I thought I had read this somewhere, but I haven't been able to find any concrete information to confirm.

[Bees Knees]

Is the addition of property tax to the standard deduction available for 2009? I thought I had read this somewhere, but I haven't been able to find any concrete information to confirm.

The 10/10/2008 update says it was extended through 2009.

[Snaggletooth]

Sales Tax Deduction

Sorry guys, started a bad thread. Because I didn't know the new stimulus package well enough so I thought I would ask about property taxes via a question model.

The "above-the-line" change apparently applies to sales taxes on the purchase of a vehicle as pointed out by "Auditor-turned-good". Property taxes apparently are going to be treated in the same fashion as they were in 2008.

Thanks to all. - Snag