If you live in San Diego, you could save on your 2018 federal tax bill by paying early on your 2017-18 property taxes.
After congress passed the new tax bill and it was signed into law by the President Trump, the way taxes are calculated has significantly change. One of the biggest changes is limits on how much a household can deduct on state and local taxes if they itemize the deduction. (State and local taxes are sometimes referred to as “SALT.”)
Paying your property taxes before the end of the year could make financial sense for you and your family because you could pay before the limit on deductions goes into effect. However, it is essential that you speak with a tax professional before making any decisions. Some advisors seem to be recommending that local homeowners do whatever they can to have their taxes paid by Dec. 31st, as having them in before the limit on deductions goes into effect could bring financial benefits.
Note: San Diego Purchase Loans is not a tax expert and this article is for general information only. Always talk with a qualified tax expert before making any decisions.
Advantages of Early Payment on 2018 Taxes
Under the current law, which will be replaced with the new law starting in 2018, California residents can deduct all of their local property and state income, as well as their sales and motor vehicle tax, when completing their federal tax returns.
However, with the new bill, which was passed through the senate, congress, and the president’s desk before Christmas, the total of state and local taxes that can be deducted are limited to $10,000 annually per household. If filing separately, spouses can only deduct $5,000. In most cases, homeowners will pay their property taxes in two installments. The first installment will be paid around December 10th, while the second will be paid four months later, during the tax season of April. However, if you pay the second half of your tax bill by the end of the year (Dec. 31st), you may be able to avoid the new cap on property tax deductions. Again, much will depend on your individual tax situation, so be sure to speak with a tax expert before making any payments.
Will You Be Able to Prepay?
Whether or not you can prepay depends on many factors, including how quickly you act. It will also depend on the speed of your local county or town. Counties have to issue tax warrants before local tax collectors can accept property tax payments. Once this step is complete, tax collectors have to get the bill out to tax payers, then it’s up to you to pay.
Various areas will have different rules and processes, but the bottom line is that if you haven’t started the process, you need to get going right away. December 31st is approaching rapidly, so contact your local tax expert today if you want to take advantage of the limited opportunity.
Also, with the push to get property taxes in before the new year, many local offices are experiencing a backlog of work. It could be difficult for them to process all of the payments, meaning some people won’t be able to file in time.
You Can Only Pay on the Upcoming Bill
While prepaying is a useful technique, you can’t prepay everything. For example, you can’t prepay on your December 2018 and April 2019 bill, because that billing cycle hasn’t begun. Essentially, you don’t know how much you will owe. This same principal applies to paying for your entire 2018 tax bill; because you don’t know the total, it can’t be prepaid.
Currently, the IRS has not issued any guidance on prepaying your property tax bill. However, there appears to be many local homeowners who already pay their full tax bill by the 31st and have not run into any problems in the past.
How can You Prepay?
There are a few ways that you can prepay on your April 2018 tax bill. First of all, you can write an e-check to your tax collector’s website if they offer this service. To complete this transaction, you’ll likely need to enter your property’s assessor parcel number and your bank routing number and account number. Online payments can usually be made with a credit or debit card, but there may be a surcharge (usually only a few dollars) for this service.
Another way to prepay is to mail a check to your tax collector with the parcel number and a note explaining that the check is for the payment of taxes that are due in April. If you forget to add that information, the office will likely return the check because they simply won’t know what it’s for. This delay could result in you missing the opportunity to prepay.
Finally, it may be possible to hand deliver a check to your tax collector’s office. Be sure to check that they will be open (calling ahead is a good idea) so that you can hand over the check in person. Dropping off the check yourself allows you to fully explain the purpose of the payment, ensuring that it goes to the right bill.
Prepaying from an Impound Account
There is also a large portion of local owners who use “impound accounts” with their lenders. A mortgage impound account is an account maintained by the mortgage company for the purpose of collecting insurance and tax payments that will be necessary for homeowners. Essentially, it is for bills that are not part of the mortgage but homeowners need to pay. Using these accounts, the lender divides the annual cost of each type of insurance into a monthly bill and adds it to the mortgage payment. In a way, it serves to consolidate all the costs associated with homeownership (mortgage, taxes, insurance) into one payment, simplifying your finances.
If you use an impound account, you can still prepay. Simply notify your mortgage servicer that holds the account that you want to prepay so they can have the account adjusted accordingly.
Always Talk with a Tax and Mortgage Experts
The bottom line is that you should always talk with a tax professional who can guide you through the new tax bill and it’s effect on your finances. Taxes can be complex, so talk with a knowledgable expert who can help you navigate the complex system.
While the team at San Diego Purchase Loans will answer as many questions as possible, a trained tax expert should be consulted as well.
