Pay your 2nd half property taxes this month for tax savings (Congress tax plan)

[OCLuvr]

I think most people in Irvine's newer areas are paying more than $10k property tax. And, if my understanding is correct AMT starts after $200k AGI, which not many single earners would be making. With 43% DTI, anyone making $130k+ would qualify for a home in newer Irvine areas. So, there should be lot of people.

 

[paperboyNC]

Is there anyone here who pays $10K+ in property taxes and is NOT in the AMT?

Just has to be 10k in property and state income taxes combined. My property taxes are under 10k.

 

[woodburyowner]

I think most people in Irvine's newer areas are paying more than $10k property tax. And, if my understanding is correct AMT starts after $200k AGI, which not many single earners would be making. With 43% DTI, anyone making $130k+ would qualify for a home in newer Irvine areas. So, there should be lot of people.

AMT does not start at $200k AGI.  The calculation is not so straight forward, but it's definitely below $200k.

 

[woodburyowner]

Is there anyone here who pays $10K+ in property taxes and is NOT in the AMT?

Just has to be 10k in property and state income taxes combined. My property taxes are under 10k.

I think this comment is more to try and illustrate the point that paying 2nd half installment before 1/1/18 won't affect anything if you are in AMT.  However, my suggestion to people is to pay the 2nd half installment and worry about AMT later.  Unless you know that you are deep within AMT and have no chance of escaping it in 2017.  Most people don't understand their taxes well enough to know so better to just pay it.

 

[freedomcm]

Is there anyone here who pays $10K+ in property taxes and is NOT in the AMT?

Just has to be 10k in property and state income taxes combined. My property taxes are under 10k.

exactly-state income tax + property tax.

very easy to exceed $10k

 

[morekaos]

Bit more color commentary.

Prepaying your property tax? IRS cautions it might not pay off

The Internal Revenue Service has a message for the homeowners rushing to prepay their property taxes before new rules take effect on New Year's Day: Not so fast.

The tax bill that President Trump signed into law last week sharply limited the itemized deductions for state and local taxes while raising the standard deduction for individuals and couples. Those rules do not take effect until 2018, however. That has led some homeowners, particularly in high-tax, affluent areas, to try to prepay their 2018 property taxes before the deduction disappears.

In an advisory notice posted to its website on Wednesday, the I.R.S. said that maneuver could work, but only under limited circumstances. To qualify for the deduction, property taxes not only need to be paid in 2017, they must also be assessed in 2017 ? meaning that homeowners who prepaid their taxes based on estimated assessments, or who tried to pay several years' worth of taxes at once, will probably be out of luck.

https://www.cnbc.com/2017/12/28/prepaying-your-property-tax-irs-cautions-it-might-not-pay-off.html

 

[Ready2Downsize]

Is there anyone here who pays $10K+ in property taxes and is NOT in the AMT?

Just has to be 10k in property and state income taxes combined. My property taxes are under 10k.

Of course there are......... plenty.

 

[potsticker]

How does it work if you have an impound account? Do you just get a check back for the reserves since you paid the 2nd installment up front?

 

[Perspective]

Is there anyone here who pays $10K+ in property taxes and is NOT in the AMT?

Just has to be 10k in property and state income taxes combined. My property taxes are under 10k.

I think this comment is more to try and illustrate the point that paying 2nd half installment before 1/1/18 won't affect anything if you are in AMT.  However, my suggestion to people is to pay the 2nd half installment and worry about AMT later.  Unless you know that you are deep within AMT and have no chance of escaping it in 2017.  Most people don't understand their taxes well enough to know so better to just pay it.

That's fair, but my question is, who owns a house in Irvine, who is not deep into the AMT? These are not the typical households - typical being two working adults with income sufficient to support a mortgage well above $500K. Even an $800K house requires a ~$160K household income to support an 80% LTV mortgage. This household is near the AMT, if not in it.

So, the sweet spot for benefiting from prepaying property taxes, is a household living in an expensive (relative to the US median) house, whose income doesn't exceed six figures by much. e.g. A recently retired couple living in a ~$1M+ Irvine house, assessed at $1M with mello roos, whose 2017 income will be below ~$150K.

Oh well, that's my happy hour tax talk - not very scientific, just running the numbers...

 

[Irvinecommuter]

IRS killing the idea
http://thehill.com/policy/finance/3...-that-prepaying-property-taxes-might-not-work

The IRS is warning taxpayers in new guidance issued Wednesday that they might not be able to deduct their prepaid 2018 property taxes on their 2017 returns.

Taxpayers expecting their bills to rise because of the new tax law?s restrictions on deductions for local, state and property taxes have reportedly rushed to prepay taxes for 2018, hoping to do so before the new law takes effect.

But in an advisory issued late Wednesday, the agency said that the prepaid taxes are only deductible if the property taxes are both assessed and paid in 2017.

Don't remember how OC works though.

 

[Perspective]

In addition to the "wealthy" household with relatively "low" income possibly benefiting by prepaying property tax in 2017, another group might be very high income households, well into the 1%ers. You can "earn" your way out of the AMT by making so much money that enough income is pushed into the higher brackets, effectively pulling you out of the AMT. This is because your regular income tax exceeds the AMT.

e.g. $1M income in 2017 and the $150K+ CA income tax and property tax aren't sufficient deductions to lower your income, and therefore reduce your income tax, below the AMT. This household's itemized deductions are also reduced by the Pease phaseout, keeping them out of the AMT. However, the Pease phaseout will reduce and possibly eliminate the benefit of prepaying property tax in 2017.

So we're back to the household with property tax and state income tax above the Standard Deduction, but income sufficiently "low" so as to avoid the AMT. Remember too, if this household is near the AMT, prepaying property tax will likely push them into the AMT.

Having fun yet?

 

[OCtoSV]

Is there anyone here who pays $10K+ in property taxes and is NOT in the AMT?

Just has to be 10k in property and state income taxes combined. My property taxes are under 10k.

I think this comment is more to try and illustrate the point that paying 2nd half installment before 1/1/18 won't affect anything if you are in AMT.  However, my suggestion to people is to pay the 2nd half installment and worry about AMT later.  Unless you know that you are deep within AMT and have no chance of escaping it in 2017.  Most people don't understand their taxes well enough to know so better to just pay it.

That's fair, but my question is, who owns a house in Irvine, who is not deep into the AMT? These are not the typical households - typical being two working adults with income sufficient to support a mortgage well above $500K. Even an $800K house requires a ~$160K household income to support an 80% LTV mortgage. This household is near the AMT, if not in it.

So, the sweet spot for benefiting from prepaying property taxes, is a household living in an expensive (relative to the US median) house, whose income doesn't exceed six figures by much. e.g. A recently retired couple living in a ~$1M+ Irvine house, assessed at $1M with mello roos, whose 2017 income will be below ~$150K.

Oh well, that's my happy hour tax talk - not very scientific, just running the numbers...

Nailed it. That's why the tax bill works for AMT households - at least we get $10K now.

 

[paperboyNC]

IRS killing the idea
http://thehill.com/policy/finance/3...-that-prepaying-property-taxes-might-not-work

The IRS is warning taxpayers in new guidance issued Wednesday that they might not be able to deduct their prepaid 2018 property taxes on their 2017 returns.

Taxpayers expecting their bills to rise because of the new tax law?s restrictions on deductions for local, state and property taxes have reportedly rushed to prepay taxes for 2018, hoping to do so before the new law takes effect.

But in an advisory issued late Wednesday, the agency said that the prepaid taxes are only deductible if the property taxes are both assessed and paid in 2017.

Don't remember how OC works though.

OC assesses July 2017 through June 2018. You are fine paying the Jan-Jun 2018 part now per the new IRS rules. You would NOT be okay paying July-Dec 2018 since you haven't gotten a bill yet and it hasn't been assessed. I never suggested paying the latter.

 

[Perspective]

Is there anyone here who pays $10K+ in property taxes and is NOT in the AMT?

Just has to be 10k in property and state income taxes combined. My property taxes are under 10k.

I think this comment is more to try and illustrate the point that paying 2nd half installment before 1/1/18 won't affect anything if you are in AMT.  However, my suggestion to people is to pay the 2nd half installment and worry about AMT later.  Unless you know that you are deep within AMT and have no chance of escaping it in 2017.  Most people don't understand their taxes well enough to know so better to just pay it.

That's fair, but my question is, who owns a house in Irvine, who is not deep into the AMT? These are not the typical households - typical being two working adults with income sufficient to support a mortgage well above $500K. Even an $800K house requires a ~$160K household income to support an 80% LTV mortgage. This household is near the AMT, if not in it.

So, the sweet spot for benefiting from prepaying property taxes, is a household living in an expensive (relative to the US median) house, whose income doesn't exceed six figures by much. e.g. A recently retired couple living in a ~$1M+ Irvine house, assessed at $1M with mello roos, whose 2017 income will be below ~$150K.

Oh well, that's my happy hour tax talk - not very scientific, just running the numbers...

Nailed it. That's why the tax bill works for AMT households - at least we get $10K now.

Well, to be fully accurate, AMT households benefit in 2018 and until this tax change expires, because the AMT exemption phaseout begins at $1M for married couples. A typical household affected by the AMT year after year, will no longer be paying AMT. So, even though your regular income tax may increase or decrease marginally, eliminating the AMT will be a net benefit worth thousands to tens of thousands.

 

[Liar Loan]

That's fair, but my question is, who owns a house in Irvine, who is not deep into the AMT? These are not the typical households - typical being two working adults with income sufficient to support a mortgage well above $500K. Even an $800K house requires a ~$160K household income to support an 80% LTV mortgage. This household is near the AMT, if not in it.

So, the sweet spot for benefiting from prepaying property taxes, is a household living in an expensive (relative to the US median) house, whose income doesn't exceed six figures by much. e.g. A recently retired couple living in a ~$1M+ Irvine house, assessed at $1M with mello roos, whose 2017 income will be below ~$150K.

Well, I don't know what the definition of "doesn't exceed six figures by much" is, but I haven't been snared by the AMT yet and fit the profile of someone who could easily live and qualify for a home in Irvine.

I think the keys for us are:

-Pretax retirement contributions (401k, CalSTRS)
-Pretax medical
-Pretax dependent care account (a pretax medical FSA would work as well, but I choose not to use this benefit)
-Buying a house near the bottom of the market (relatively low property taxes)
-Charitable contributions (this is a double benefit as it lowers state income tax and doesn't get added back into AMT calculation)
-Maxing out Roth IRA's.  This doesn't directly help with AMT, but ensures that much of our capital gains / dividends remain tax free.
-Invest in real estate.  This doesn't directly help with AMT either, but depreciation and generous deductions help shield this income from taxation.

So anyway, I prepaid my 2nd property tax installment last night.  8)

 

[Perspective]

That's fair, but my question is, who owns a house in Irvine, who is not deep into the AMT? These are not the typical households - typical being two working adults with income sufficient to support a mortgage well above $500K. Even an $800K house requires a ~$160K household income to support an 80% LTV mortgage. This household is near the AMT, if not in it.

So, the sweet spot for benefiting from prepaying property taxes, is a household living in an expensive (relative to the US median) house, whose income doesn't exceed six figures by much. e.g. A recently retired couple living in a ~$1M+ Irvine house, assessed at $1M with mello roos, whose 2017 income will be below ~$150K.

Well, I don't know what the definition of "doesn't exceed six figures by much" is, but I haven't been snared by the AMT yet and fit the profile of someone who could easily live and qualify for a home in Irvine.

I think the keys for us are:

-Pretax retirement contributions (401k, CalSTRS)
-Pretax medical
-Pretax dependent care account (a pretax medical FSA would work as well, but I choose not to use this benefit)
-Buying a house near the bottom of the market (relatively low property taxes)
-Charitable contributions (this is a double benefit as it lowers state income tax and doesn't get added back into AMT calculation)
-Maxing out Roth IRA's.  This doesn't directly help with AMT, but ensures that much of our capital gains / dividends remain tax free.
-Invest in real estate.  This doesn't directly help with AMT either, but depreciation and generous deductions help shield this income from taxation.

So anyway, I prepaid my 2nd property tax installment last night.  8)

I'll speculate you narrowly escape AMT each year. In other words, your calculated AMT is just slightly below your federal income tax calculation every year. If your additional property tax is a big amount, it might reduce your federal income tax calc sufficiently to push you into the AMT for 2017. You'll still likely benefit by prepaying it though.

 

[usctrojancpa]

That's fair, but my question is, who owns a house in Irvine, who is not deep into the AMT? These are not the typical households - typical being two working adults with income sufficient to support a mortgage well above $500K. Even an $800K house requires a ~$160K household income to support an 80% LTV mortgage. This household is near the AMT, if not in it.

So, the sweet spot for benefiting from prepaying property taxes, is a household living in an expensive (relative to the US median) house, whose income doesn't exceed six figures by much. e.g. A recently retired couple living in a ~$1M+ Irvine house, assessed at $1M with mello roos, whose 2017 income will be below ~$150K.

Well, I don't know what the definition of "doesn't exceed six figures by much" is, but I haven't been snared by the AMT yet and fit the profile of someone who could easily live and qualify for a home in Irvine.

I think the keys for us are:

-Pretax retirement contributions (401k, CalSTRS)
-Pretax medical
-Pretax dependent care account (a pretax medical FSA would work as well, but I choose not to use this benefit)
-Buying a house near the bottom of the market (relatively low property taxes)
-Charitable contributions (this is a double benefit as it lowers state income tax and doesn't get added back into AMT calculation)
-Maxing out Roth IRA's.  This doesn't directly help with AMT, but ensures that much of our capital gains / dividends remain tax free.
-Invest in real estate.  This doesn't directly help with AMT either, but depreciation and generous deductions help shield this income from taxation.

So anyway, I prepaid my 2nd property tax installment last night.  8)

I did the same thing on Tuesday.  I might actually be phased out of AMT altogether since my income was higher than I expected it to be so I went ahead and make a large 5 figure estimate CA tax payment for my 2017 CA income tax in hopes of getting out of AMT and getting the benefit of the payment in 2017 while getting a larger CA refund next year as I think my real estate commissions will drop in 2018 compared to 2017.

 

[Liar Loan]

That's fair, but my question is, who owns a house in Irvine, who is not deep into the AMT? These are not the typical households - typical being two working adults with income sufficient to support a mortgage well above $500K. Even an $800K house requires a ~$160K household income to support an 80% LTV mortgage. This household is near the AMT, if not in it.

So, the sweet spot for benefiting from prepaying property taxes, is a household living in an expensive (relative to the US median) house, whose income doesn't exceed six figures by much. e.g. A recently retired couple living in a ~$1M+ Irvine house, assessed at $1M with mello roos, whose 2017 income will be below ~$150K.

Well, I don't know what the definition of "doesn't exceed six figures by much" is, but I haven't been snared by the AMT yet and fit the profile of someone who could easily live and qualify for a home in Irvine.

I think the keys for us are:

-Pretax retirement contributions (401k, CalSTRS)
-Pretax medical
-Pretax dependent care account (a pretax medical FSA would work as well, but I choose not to use this benefit)
-Buying a house near the bottom of the market (relatively low property taxes)
-Charitable contributions (this is a double benefit as it lowers state income tax and doesn't get added back into AMT calculation)
-Maxing out Roth IRA's.  This doesn't directly help with AMT, but ensures that much of our capital gains / dividends remain tax free.
-Invest in real estate.  This doesn't directly help with AMT either, but depreciation and generous deductions help shield this income from taxation.

So anyway, I prepaid my 2nd property tax installment last night.  8)

I'll speculate you narrowly escape AMT each year. In other words, your calculated AMT is just slightly below your federal income tax calculation every year. If your additional property tax is a big amount, it might reduce your federal income tax calc sufficiently to push you into the AMT for 2017. You'll still likely benefit by prepaying it though.

I would suspect the same, although I haven't run the numbers.  Narrowly escaping the AMT seems like the optimal outcome though.  It means you're maximizing the dollar amount that the tax code remains favorable without going over some arbitrary threshold that leads to getting beat with a cudgel.

 

[Perspective]

That's fair, but my question is, who owns a house in Irvine, who is not deep into the AMT? These are not the typical households - typical being two working adults with income sufficient to support a mortgage well above $500K. Even an $800K house requires a ~$160K household income to support an 80% LTV mortgage. This household is near the AMT, if not in it.

So, the sweet spot for benefiting from prepaying property taxes, is a household living in an expensive (relative to the US median) house, whose income doesn't exceed six figures by much. e.g. A recently retired couple living in a ~$1M+ Irvine house, assessed at $1M with mello roos, whose 2017 income will be below ~$150K.

Well, I don't know what the definition of "doesn't exceed six figures by much" is, but I haven't been snared by the AMT yet and fit the profile of someone who could easily live and qualify for a home in Irvine.

I think the keys for us are:

-Pretax retirement contributions (401k, CalSTRS)
-Pretax medical
-Pretax dependent care account (a pretax medical FSA would work as well, but I choose not to use this benefit)
-Buying a house near the bottom of the market (relatively low property taxes)
-Charitable contributions (this is a double benefit as it lowers state income tax and doesn't get added back into AMT calculation)
-Maxing out Roth IRA's.  This doesn't directly help with AMT, but ensures that much of our capital gains / dividends remain tax free.
-Invest in real estate.  This doesn't directly help with AMT either, but depreciation and generous deductions help shield this income from taxation.

So anyway, I prepaid my 2nd property tax installment last night.  8)

I did the same thing on Tuesday.  I might actually be phased out of AMT altogether since my income was higher than I expected it to be so I went ahead and make a large 5 figure estimate CA tax payment for my 2017 CA income tax in hopes of getting out of AMT and getting the benefit of the payment in 2017 while getting a larger CA refund next year as I think my real estate commissions will drop in 2018 compared to 2017.

You don't necessarily "phase out" of the AMT. Your income can be so large relative to your large deductions, that your income tax exceeds your AMT; and therefore there is no additional AMT applied to your income tax total.

e.g. A household making $300K paying $10K+ in AMT every year, could realize a gain from ISOs/NQSOs sold of $100K, and the applicable tax causes their federal income tax calc to exceed their AMT calc for that year.

 

[usctrojancpa]

That's fair, but my question is, who owns a house in Irvine, who is not deep into the AMT? These are not the typical households - typical being two working adults with income sufficient to support a mortgage well above $500K. Even an $800K house requires a ~$160K household income to support an 80% LTV mortgage. This household is near the AMT, if not in it.

So, the sweet spot for benefiting from prepaying property taxes, is a household living in an expensive (relative to the US median) house, whose income doesn't exceed six figures by much. e.g. A recently retired couple living in a ~$1M+ Irvine house, assessed at $1M with mello roos, whose 2017 income will be below ~$150K.

Well, I don't know what the definition of "doesn't exceed six figures by much" is, but I haven't been snared by the AMT yet and fit the profile of someone who could easily live and qualify for a home in Irvine.

I think the keys for us are:

-Pretax retirement contributions (401k, CalSTRS)
-Pretax medical
-Pretax dependent care account (a pretax medical FSA would work as well, but I choose not to use this benefit)
-Buying a house near the bottom of the market (relatively low property taxes)
-Charitable contributions (this is a double benefit as it lowers state income tax and doesn't get added back into AMT calculation)
-Maxing out Roth IRA's.  This doesn't directly help with AMT, but ensures that much of our capital gains / dividends remain tax free.
-Invest in real estate.  This doesn't directly help with AMT either, but depreciation and generous deductions help shield this income from taxation.

So anyway, I prepaid my 2nd property tax installment last night.  8)

I did the same thing on Tuesday.  I might actually be phased out of AMT altogether since my income was higher than I expected it to be so I went ahead and make a large 5 figure estimate CA tax payment for my 2017 CA income tax in hopes of getting out of AMT and getting the benefit of the payment in 2017 while getting a larger CA refund next year as I think my real estate commissions will drop in 2018 compared to 2017.

You don't necessarily "phase out" of the AMT. Your income can be so large relative to your large deductions, that your income tax exceeds your AMT; and therefore there is no additional AMT applied to your income tax total.

e.g. A household making $300K paying $10K+ in AMT every year, could realize a gain from ISOs/NQSOs sold of $100K, and the applicable tax causes their federal income tax calc to exceed their AMT calc for that year.

Sorry bad choice of words using "phased out of"....like you said my federal tax will be greater than my AMT calculated tax hence why I'll probably get most all, if not all, of my 2017 estimated CA as a deduction in 2017.