SALT limits in new tax plan

[FEDUKE404]

While the NY Times is hardly a "tax source," this excerpt from a current online article caught my attention.

Anyone want to take a stab at it??

NOW You can generally deduct the amount you pay for state and local income taxes, including property taxes, on your federal income tax return. You can also deduct the interest you pay each year on mortgage debt up to $1 million, a cap that can cover multiple homes. Plus, you can generally deduct up to $100,000 in interest you pay on a home-equity loan or line of credit.

NEW PLAN Taxpayers may deduct only up to $10,000 total, which may include any combination of state and local taxes, including property taxes (also sales taxes). But don’t try to prepay your state and local income taxes before year-end to circumvent the new limit. The proposal is one step ahead of you and your accountant and won’t allow it.

FE

[kathyc2]

A stab at why NYT is saying this? Because it's in the bill. Page 87:

"an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed."

[TaxGuyBill]

I'm unsure what your question is, but yes, that is true.

Here is the legal gibberish in the proposed law that disallows prepayment of 2018 income taxes:

"For purposes of subparagraph (B), an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, shall be treated as paid on the last day of the taxable year for which such tax is so imposed.’’.

http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf#page=89

[JudyL]

If the 4th quarter 2017 state estimate due by 1/15/18 is paid before 12/31/17, the tax year for which that tax is imposed IS 2017 and IS being paid in the tax year for which it is imposed, and that makes it deductible on the 2017 Schedule A.

[kathyc2]

The word "imposed" is open to interpretation. In Indiana, your 2018 RE tax liability is determined by property owned 12.31.17 although the bills don't go out until April. In fact, the bill will say "2017 tax pay 2018". At this point, I'm planning to deduct on A any clients that pay any RE tax payments for 18 due tax yet this year.

For estimated overpayments of 2017 tax, just like in prior years the overpayment would be taxable in 2018. However, with 2018 rates being slightly lower, they may come out ahead. Doubtful IRS could or would disallow 2017 overpayment on A until it's absurdly high.

[kathyc2]

They already know they will need additional legislation to correct errors in bill. From what I'm reading they would need 60 votes rather than the 51 for corrections. Buckle up, it could get interesting!

[FEDUKE404]

Time restrictions on SALT payments

Thanks to all for doing the ground work on the new twist.

Since the topic won't really become relevant until, perhaps, a year from now I'll just sit back and watch the fur fly.

Do you think this "restriction" will apply to both state/local property tax as well as to state/local income tax? If both, that could really muck up things for people (soon to be) right on the edge of itemizing and can/could move such deductions around so as to have perhaps an "itemized" year every now and then.

I guess, as my grandmother used to say, "Make hay while the sun shines!" Unless someone is tap-dancing around a 2017 AMT issue, it could be reasonably prudent to get as much SALT money into the pot as possible by 12/31/2017.

FE

[kathyc2]

Since the topic won't really become relevant until, perhaps, a year from now I'll just sit back and watch the fur fly.

How do you figure that? The sentence referenced is to prevent people from making payments yet in 2017 where it will benefit them rather than making the payment in 2018. If enforced, it would effect 2017 Schedule A.

[FEDUKE404]

Applicable during calendar year 2017 ??

How do you figure that? The sentence referenced is to prevent people from making payments yet in 2017 where it will benefit them rather than making the payment in 2018. If enforced, it would effect 2017 Schedule A.

I have better things to do than read through a mountain of pending legislation, but my supposition (OK, assumption!!) is that the "prohibition" will not occur during calendar year 2017, thus leaving a closing window for those who have an avenue of escape for the $10k limit to start with tax year 2018.

I don't personally see how it could possibly impact 2017 payments. What happens to a careful planner who sent their state an extra $5k of 2017 state estimated taxes a couple of weeks ago??

I'm sure someone here will straighten out my perhaps-faulty reasoning on the matter. . .

FE

[kathyc2]

At what time is a state income tax "imposed"? Is the withholding from paycheck an imposition of tax or simply a prepayment of future imposition? In the case of a self employed person is the tax imposed when you earn income? When you make an estimated payment? When you file a return to report the earning?

Barring a legal definition as to when tax is "imposed", I don't think they can enforce this. If the tax is "imposed" when the return is filed and everything else is just a prepayment, then all withholding and estimated payments made in 2017 would be for tax that has not been "imposed" yet.

[Twin Turbo Z]

But wait !!! There's more !!