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Some of my friends paid their property taxes early this year, due to the new 10K deduction limit (https://www.mercurynews.com/2017/12/22/can-you-pre-pay-your-2018-taxes-to-avoid-the-gop-tax-bill-heres-what-you-need-to-know/). I am unclear as to what deductions gets counted in the 10,000 limit. Is mortgage interest deductions counted in the 10K?

My property tax is less than $8000 annually. I wonder if it is still beneficial for me to pay my property tax early.

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    @Kevin - it would be [(income tax OR sales tax) + property tax] is capped at 10K. – TTT Dec 26 '17 at 22:49
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The $10K SALT (state and local tax) limit is the sum of:

State Income Tax OR State Sales Tax (whichever is higher)
+ Real Estate Tax
= at most a $10K deduction

In your case, if your state income or sales tax paid next year is at least $2K, then you will max out the SALT deduction. In order to itemize next year you'll need to have at least $2K more in deductible expenses if single (e.g. mortgage interest, charitable donations, medical expenses over 7.5% AGI) to hit the $12K deduction, or $14K more in deductible expenses if married to hit the $24K deduction. (Yes, the $10K max SALT deduction is the same for single or married, which truly is a marriage penalty.)

If you have the option of paying your property tax early (good for you if your county allows this), then it absolutely makes sense to do it if you can itemize this year and you won't be able to itemize next year. If you can itemize next year, but wouldn't be able to itemize if you pay your property tax this year, then it also makes sense to pay it early.

  • Also see that the married/single cap is NOT the same for married filing separately - altogether looks like that wasn't well thought out. – BobE Dec 26 '17 at 23:23
  • @BobE - yep - married filing separately is 5K each, but that one doesn't surprise me since they seem to try to discourage married file separately in general. – TTT Dec 26 '17 at 23:25
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I am unclear as to what deductions gets counted in the 10,000 limit.

That limit is for state and local income and property taxes.

Is mortgage interest deductions counted in the 10K?

No - that's not a tax - it's interest.

My property tax is less than $8000 annually. I wonder if it is still beneficial for me to pay my property tax early.

It might, if you itemize deductions this year but won't next year since the standard deduction goes up. If the total of all of your itemized deductions this year is more than next year's standard deduction, then yes, it makes sense to pay your property taxes this year.

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"Taxpayers can deduct a maximum of $10,000 in state and local income taxes or sales taxes, plus property taxes, .... The $10,000 cap applies whether you are single or married filing jointly; if you are married filing separately, it drops to $5,000." - https://www.investopedia.com/taxes/how-gop-tax-bill-affects-you/#ixzz52PYk7rUL

also note:

"Under the new legislation, the deduction for all state and local taxes combined cannot exceed $10,000. These taxes include state and local income, sales, real estate, or property taxes." Note "All" and "combined" -https://www.hrblock.com/tax-center/irs/tax-reform/3-changes-itemized-deductions-tax-reform-bill/

Personally, I just sent in prepayment of my property tax (since I will not reach the Standard Deduction threshold in 2018), the property tax office notified me today that they would NOT accept prepayment of ALL my property tax that is due in 2018. Check with your local taxing body.

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Another thing to consider is AMT. If you are already paying enough income/sales tax and property tax to be subject to AMT in 2017, it won't make sense to prepay any additional tax because while it may reduce your regular tax calculation, it will not lower your AMT tax and you won't reduce your overall tax liability.

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