The new tax reform law has passed Congress and is awaiting the President’s signature! There are a lot of Christmas goodies in the new law, but a few lumps of coal as well (sorry, couldn’t help myself!). I am preparing a more extensive blog on the nitty gritty of the Act, but I wanted to push out a quick blog as there is a ton of miss-information flying around about year-end moves taxpayers should make.
The biggest issue I am hearing from my clients is the question of pre-paying real estate. As has been much discussed in the media, the new Act truncates the deduction for State and Local Income tax payments if they are higher than $10,000. For taxpayers living in high tax states, such as Illinois, California and New York, that can be quite a tax hit. What is not usually discussed, is the fact that the Alternative Minimum tax eliminates the tax benefit of that deduction for many high-income taxpayers that would have the extra cash laying around to pre-pay a tax. Many taxpayers that are rushing to pre-pay real estate taxes may be surprised at tax time to find they do not get any benefit from those payments. Moreover, the new Act has a much higher AMT trigger, so you may actually be better off waiting since you may escape AMT entirely due to the new law.
I prefer the good ol’ tried and true year end planning techniques. Make sure to secure charitable donations, including non-cash contributions, before year end. If you have any loss position stocks in the market, it might be a good idea to unload some of those and offset any gains. If you are considering business purchases in January, you may want to determine if you can pay for those in December so you can get the deduction in the 2017 tax year instead of waiting over a year to obtain the benefit of the deduction on the 2018 tax return.
More to come on the new law as I delve into this wonderful holiday reading!