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Tax Reform & Tax Deductions: Action Before Year-End
By now, you’ve undoubtedly heard that a new tax bill is coming for 2018. The House and Senate bills are currently being reconciled. We expect the final bill to be closer to the Senate version due to the final vote of 51/49. If there are too many changes, some votes could be lost and the bill won’t pass.
The proposed tax law under both the Senate and House plans include provisions eliminating or limiting certain itemized deductions beginning in 2018. Therefore potentially, if the law is passed, taxes that are deductible in 2017 will no longer be deductible or limited if paid in 2018.
Planning Opportunities by 12/31/17 – Real Estate Taxes, State Income Taxes and Other Deductions
You should consider prepaying certain taxes due in 2018 if the prepayment is allowed.
If you are in AMT, prepayment of State and Local Taxes will not benefit you, so please contact your Porte Brown accountant if you have any questions with regards to AMT.
The deduction for state income/sales taxes is set to go away under both the House and Senate bills. You can prepay the income taxes by either increasing withholding, or making the 4th quarter estimated payment before December 31 (depending on County could be by 12/29)
The real estate tax deduction on primary residences has been quite a wild card throughout this process and could continue to be one in the reconciliation process. Currently, both the House and Senate bills include a $10,000 cap on real estate taxes. If your property taxes EXCEED $10,000 per year and this makes it into law, you should consider paying a portion of next year’s taxes before December 31st. In Illinois, real estate taxes owed in 2018 are for the 2017 assessment year. All of the counties in the Chicagoland have procedure for prepaying the real estate taxes before December 31, 2017. (See Below for County Information)
For second homes (NOT rentals), the real estate tax deduction is set to be completely eliminated. Property taxes on second homes should be paid prior to December 31st.
Medical deductions only seem to affect certain taxpayers, but you do need to be ready to act. The House bill eliminates the deduction for medical expenses. The Senate version includes it. If the final bill is closer to the Senate bill, we should be fine here. However, bunching medical expenses is always a good idea anyway so paying medical expenses now rather than January won’t hurt you regardless if the new bill keeps the deduction. The total medical expenses have to exceed certain AGI limits, so that should be considered.
Similar to medical, only some taxpayers are able to deduct miscellaneous itemized deductions, which exceed 2% of AGI. Typical miscellaneous itemized deductions are employee business expenses, tax prep fees, and investment advisor fees. There are others, but these are the main ones. If the 2018 bill passes, this deduction will likely be completely eliminated.
Under both the House and Senate bills the tax rates are coming down. If you have the ability to control the receipt of income, pushing it into 2018 might be wise.
Due to the tax rate changes, charitable deductions will end up providing a bigger benefit in 2017 vs. 2018.
Caution: Beware of the Alternative Minimum Tax
State and local taxes, both income and real estate taxes, are not deductible under the AMT tax calculations.
If you are in AMT, the prepayment strategy will not reduce your 2017 federal income tax liability. You should review your state income tax payments, and verify that you are “safe harbored” from the state estimated tax payment penalties, in either case.
The ability to make such Real Estate Tax pre-payments, and the amount that can be pre-paid, is determined on a county-by-county basis. For your reference, the attached summaries for each Chicago-area county are listed below. In addition, pre-payment of Real Estate Tax will not be able to be paid from a mortgage escrow account.
Beginning Tuesday, December 12, 2017, Cook County Treasurer Maria Pappas is accepting online prepayments of next year's First Installment property tax bill.
For taxpayers who prefer to pay by mail or in person, Pappas will also enable taxpayers to download and print a prepayment bill themselves.
The improvements are being made as the number of prepayment requests surges this year.
Under state law, Tax Year 2017 First Installment taxes, due March 1, 2018, are 55 percent of the prior year's total tax. To prepay, taxpayers must have their 14-digit Property Index Number (PIN), which can be found at the top of the most recent tax bill, near the amount due. Taxpayers can also use their property address to look up their PIN on cookcountytreasurer.com.
Here's how to prepay:
Online - Go to cookcountytreasurer.com and select “Prepay Your 2017 Taxes.” You can use your bank account or credit card to pay.
Download your bill - You can print a copy of your prepayment bill by choosing “Download Your Bill” on the homepage and entering your PIN or property address.
By mail - Send the prepayment bill and your payment to:
Cook County Treasurer
PO Box 805436
Chicago, IL 60680-4115
In person - Submit the prepayment bill and payment at a Chase branch bank or the Treasurer's Office, 118 N. Clark St., Room 112, Chicago.
Real estate taxes can be paid early by sending a check or going to the assessor’s office. The check should be mailed after the assessor’s office has closed its tax year (roughly the second week of December) and obviously before December 31, 2017. The check should state in the memo line “2017 Estimated Taxes” and include the property index number (PIN). The total tax amount for 2017 will not be known at the time but an estimate is fine and the remaining balance due can be paid later in 2018.
If paying by check mail to:
DuPage County Treasurer
421 N County Farm Rd
Wheaton IL 60187
Attn: Prepayment Program
Cash, check, credit card and debit card payments may be made in person at the DuPage County Treasurer’s Office at 421 N County Farm Rd Wheaton, IL 60187.
Indicate PIN on check
MasterCard, Visa and Discover. The credit card processor does add a convenience fee of 2.10%.
Online payments may be made through your bank’s online bill payment program.
You cannot make prepayments through the DuPage County website.
There is a formal program for the ability to pre-pay taxes. To apply for the program a taxpayer needs to call the Treasurer’s office (630-232-3565) on or after December 1 and ask for Michelle. She handles the application process and all requests for pre-payment.
The payment must be received between December 1 – 29, they do not accept postmark. The amount cannot exceed the present year taxes. The PIN should be written on the check. “Pre-payment” should be written on both the check and the envelope. Any additional taxes due can be paid later in 2018. A link to the assessor’s web page with the previously stated requirements and the address to mail the check is provided here: www.lakecountyil.gov
A taxpayer should complete and sign the Advance Tax Agreement and return it to the treasurer’s office with a check by December 29, 2017. The form should include the PIN of all parcels or a copy of a tax bill must accompany the payment. If participating in this program all outstanding balances must be paid by the first installment due date. To participate in the program the advance tax agreement form can be found here: www.co.mchenry.il.us
There is a $2 fee to pre-pay the taxes. A check should be mailed to the treasurer’s office. The check should include the PIN and “2017 pre-payment”. Any difference between the actual assessed tax and the submitted pre-payment will be reconciled in 2018 with the county.
Will County Collector
302 North Chicago Street
Joliet, IL 60432
Taxes Paid to Other States for Property Owned
If you own property in other states, you will need to review each of those locality instructions
If you have any questions, contact your Porte Brown accountant at 847-956-1040. With regards to prepayment of County Taxes, you should contact your County directly for any questions.
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