Property Taxes Frederick?

pilot25 · Dec 27, 2017

Thanks!! Very informative. Also, people who pay AMT will just be fronting their tax payment for no reason as it isn't deductible anyway. I don't know the AMT rules coming for 2018. I think they are unchanged.

Regarding 529. Do you think there is long term benefit of an out of state 529 such as Utah or Virginia with their low cost Vanguard account vs. MD high cost T. Rowe accounts? With $2500 max deduction /child I did a rough calculation at the end of life of the 529 my savings were significant with a lower cost vs. higher deduction. Of course, each situation is different. I only have one child so that $2500 deduction was enough to make me roll over the VA 529 that I currently have when we moved here. I'm speaking of the investment savings vs. the tuition prepayment.

fabsroman · Dec 27, 2017

pilot25 said:
Thanks!! Very informative. Also, people who pay AMT will just be fronting their tax payment for no reason as it isn't deductible anyway. I don't know the AMT rules coming for 2018. I think they are unchanged.

Regarding 529. Do you think there is long term benefit of an out of state 529 such as Utah or Virginia with their low cost Vanguard account vs. MD high cost T. Rowe accounts? With $2500 max deduction /child I did a rough calculation at the end of life of the 529 my savings were significant with a lower cost vs. higher deduction. Of course, each situation is different. I only have one child so that $2500 deduction was enough to make me roll over the VA 529 that I currently have when we moved here. I'm speaking of the investment savings vs. the tuition prepayment.

We are in the MD 529 investment plan because of the 9% savings in taxes. Went with the investment plan instead of the pre-pay plan because if the kids decide to go out of state the interest on the pre-pay plan is pathetic. Been making contributions since 2008 for the first child and since 2009 for the first and 2nd child, and here and there first three since 2012. Just off the top of my head, I am guessing we have contributed $100k so far, which means we saved $9k in taxes. The T. Rowe annual fee is around 0.6%. At first, the total fee would have been small, but now that we are at $160k, 0.6% can add up to a decent amount per year.

https://maryland529.com/Portals/0/Files/cip_disclosure.pdf at page 9

Even if Vanguard had no fee whatsoever, that 9% tax savings is enough to cover several years worth of T. Rowe Price fees. Guess the exact number would depend on exactly what the Vanguard fees are, what the T. Rowe Price fee is, and then figuring that into the 9% income tax savings. I have not calculated it down to the penny, but the difference, if any, is probably very minimal.

End of the day, we are up $60k on the 529 plans.

Also, the deduction can be as much as $5,000 per child per year IF you have a spouse that is also contributing. I opened an account for each child and my wife opened an account for each child. I contribute $2,500 per child and she contributes $2,500 per child. We deduct between $10,000 to $15,000 a year for 529 contributions.

Now, ask me where the vast majority of our retirement accounts are. Vanguard.

pilot25 · Dec 27, 2017

Back on topic. Prepaid taxes will be fully deductible.

http://thehill.com/policy/finance/3...taxes-deductible-if-assessed-and-paid-in-2017

JPG · Dec 27, 2017

pilot25 said:
Back on topic. Prepaid taxes will be fully deductible.

http://thehill.com/policy/finance/3...taxes-deductible-if-assessed-and-paid-in-2017

Not necessarily:

"The Internal Revenue Service announced Wednesday that taxpayers can prepay their 2018 property taxes only if they have already received a tax assessment from their local government and they make payment by the end of the year."

https://www.washingtonpost.com/news...limited-circumstances/?utm_term=.58e77c0aa4f7

pilot25 · Dec 27, 2017

JPG said:
Not necessarily:

"The Internal Revenue Service announced Wednesday that taxpayers can prepay their 2018 property taxes only if they have already received a tax assessment from their local government and they make payment by the end of the year."

https://www.washingtonpost.com/news...limited-circumstances/?utm_term=.58e77c0aa4f7

Right, that is one of the reasons Frederick won't allow prepay. They probably finish their assessments closer to the end of the first quarter.

fabsroman · Dec 27, 2017

pilot25 said:
Right, that is one of the reasons Frederick won't allow prepay. They probably finish their assessments closer to the end of the first quarter.

Here is an article with more information:

https://www.washingtonpost.com/loca...s-535pm:homepage/story&utm_term=.aebab5fc215a

Not sure what the definition of "assessed" is, but the assessments are usually done by now on homes. Only thing remaining is to multiply the assessed amount of the property times the tax rates and then send the bills out. Of course, the bills could be considered an "assessment". This could get tricky if somebody really wanted to litigate it.

What I find hilarious in the article is that people paying $12,000 in property taxes are saying that they are getting screwed by this tax bill. If they are paying that much in property taxes, this tax reform probably helps them the most out of anybody. It might not help them on the itemized deductions issue, but it most likely helps them with the reduction of the income tax rates, etc.

Think I am going to skip pre-paying my property taxes and just put all the extra cash into 529 plans. A bird in the hand is worth two in the bush, or something like that.

pilot25 · Dec 27, 2017

fabsroman said:
Here is an article with more information:

https://www.washingtonpost.com/loca...s-535pm:homepage/story&utm_term=.aebab5fc215a

Not sure what the definition of "assessed" is, but the assessments are usually done by now on homes. Only thing remaining is to multiply the assessed amount of the property times the tax rates and then send the bills out. Of course, the bills could be considered an "assessment". This could get tricky if somebody really wanted to litigate it.

What I find hilarious in the article is that people paying $12,000 in property taxes are saying that they are getting screwed by this tax bill. If they are paying that much in property taxes, this tax reform probably helps them the most out of anybody. It might not help them on the itemized deductions issue, but it most likely helps them with the reduction of the income tax rates, etc.

Think I am going to skip pre-paying my property taxes and just put all the extra cash into 529 plans. A bird in the hand is worth two in the bush, or something like that.

Whatever it is they aren't willing to deal with it. I don't hear Jan Gardner calling a special council meeting like they did in MoCo.

fabsroman · Dec 27, 2017

pilot25 said:
Whatever it is they aren't willing to deal with it. I don't hear Jan Gardner calling a special council meeting like they did in MoCo.

PG County had a special council meeting scheduled for tomorrow, but canceled it after this IRS guidance was released. I really do think it is going to come down to the definition of "assessed", but who the heck wants to spend the money to litigate this? Maybe a retired attorney with time on his/her hands, but nobody else will be willing to deal with this. Certainly a gray area, but if the IRS takes a specific position and then hits tax returns with a massive penalty for grossly understating the tax due. What a headache this is turning out to be.

Fredcohunter · Dec 28, 2017

From the IRS:

IR-2017-210, Dec. 27, 2017
WASHINGTON - The Internal Revenue Service advised tax professionals and taxpayers today that pre-paying 2018 state and local real property taxes in 2017 may be tax deductible under certain circumstances.

The IRS has received a number of questions from the tax community concerning the deductibility of prepaid real property taxes. In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017. State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.

The following examples illustrate these points.

Example 1: Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018. On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018. Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.

Example 2: County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 – June 30, 2018. County B intends to make the usual assessment in July 2018 for the period July 1, 2018 – June 30, 2019. However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year. Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018.

The IRS reminds taxpayers that a number of provisions remain available this week that could affect 2017 tax bills. Time remains to make charitable donations. See IR-17-191 for more information. The deadline to make contributions for individual retirement accounts - which can be used by some taxpayers on 2017 tax returns - is the April 2018 tax deadline.

IRS.gov has more information on these and other provisions to help taxpayers prepare for the upcoming filing season.

fabsroman · Dec 28, 2017

Fredcohunter said:
From the IRS:

IR-2017-210, Dec. 27, 2017
WASHINGTON - The Internal Revenue Service advised tax professionals and taxpayers today that pre-paying 2018 state and local real property taxes in 2017 may be tax deductible under certain circumstances.

The IRS has received a number of questions from the tax community concerning the deductibility of prepaid real property taxes. In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017. State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.

The following examples illustrate these points.

Example 1: Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018. On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018. Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.

Example 2: County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 – June 30, 2018. County B intends to make the usual assessment in July 2018 for the period July 1, 2018 – June 30, 2019. However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year. Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018.

The IRS reminds taxpayers that a number of provisions remain available this week that could affect 2017 tax bills. Time remains to make charitable donations. See IR-17-191 for more information. The deadline to make contributions for individual retirement accounts - which can be used by some taxpayers on 2017 tax returns - is the April 2018 tax deadline.

IRS.gov has more information on these and other provisions to help taxpayers prepare for the upcoming filing season.

Thanks, I think that pretty much puts this issue to rest and there are going to be a lot of people shopping for tax preparers that will include the pre-payment of 2018 property taxes on the 2017 Schedule A and there will be a lot of people doing their own returns so they can include that pre-payment on their 2017 Schedule A.

I probably shouldn't give people ideas about breaking the law.

As the IRS mentioned, there are plenty of available options to save on taxes in 2017. Granted, saving for retirement isn't quite as sexy as pre-paying real property taxes.

Fredcohunter · Dec 28, 2017

fabsroman said:
Thanks, I think that pretty much puts this issue to rest and there are going to be a lot of people shopping for tax preparers that will include the pre-payment of 2018 property taxes on the 2017 Schedule A and there will be a lot of people doing their own returns so they can include that pre-payment on their 2017 Schedule A.

I probably shouldn't give people ideas about breaking the law.

As the IRS mentioned, there are plenty of available options to save on taxes in 2017. Granted, saving for retirement isn't quite as sexy as pre-paying real property taxes.

As a CPA I would not sign (or prepare) a return if the client insisted on taking an unreasonable tax position on their return.

fabsroman · Dec 28, 2017

Fredcohunter said:
As a CPA I would not sign (or prepare) a return if the client insisted on taking an unreasonable tax position on their return.

As a CPA and an attorney, I wouldn't sign them either. I've had to refuse to do several returns in my time because of positions that people wanted to take and things they wanted to deduct. However, I have seen some returns prepared by CPA's that are downright terrible. There are plenty of taxpayers shopping around for the most unethical preparer possible. Sadly, the taxpayers do not understand that they are ultimately responsible for what is on their tax returns.

I am sure you and I could swap plenty of war stories, like my client that was insisting that deducting the kitchen sink repair on their principal residence was deductible because their neighbors said it was. Same client tried to tell me that the husband's suits, which he used as a car salesman, were also deductible because he never wore them anywhere except for work. Had an LEO that wanted to deduct a Tag Heur because he was required to tell time on his job. When I told him I would not put it on the return, he went elsewhere. Oh yeah, he wanted to deduct razor blades, shaving cream, and haircuts too because his employer required him to be clean cut. Supposedly, there was a tax preparer that "specialized" in LEO returns that would deduct this stuff. Had to tell him to go to that preparer because he just would not take "no" as an answer, even when I showed him the publication that said the stuff was not deductible.

Alright, rant over and thanks for listening.

Fredcohunter · Dec 28, 2017

fabsroman said:
I have seen some returns prepared by CPA's that are downright terrible. There are plenty of taxpayers shopping around for the most unethical preparer possible. Sadly, the taxpayers do not understand that they are ultimately responsible for what is on their tax returns.

This is sad but true. I have seen some scary returns. I have also had prospects stay with their tax preparer that let them take unreasonable deductions because in their view the preparer was "aggressive"

fabsroman · Dec 28, 2017

Fredcohunter said:
This is sad but true. I have seen some scary returns. I have also had prospects stay with their tax preparer that let them take unreasonable deductions because in their view the preparer was "aggressive"

"aggressive" - that actually got a good laugh out of me. It really does piss me off that Congress will not fund the IRS and a lot of taxpayers think they have a free pass to deduct the kitchen sink. Raising the standard deduction might be the way for Trump to make sure that fewer people try to deduct the kitchen sink.

Once upon a time, there was a professional preparer telephone line at the IRS that gave me instant service, and really good service. Nowadays, calling the IRS is akin to going to the dentist. Any chance you are a member of the Maryland Society of Accounting and Tax Professionals? If so, maybe we can get together at a CPE seminar.

pilot25 · Dec 28, 2017

https://www.fredericknewspost.com/n...cle_cfbc9e6b-3868-582b-9c5d-980de2ff2928.html

Ok, now I'm pissed at the dim wit govt. employee I talked to.

t84a · Dec 28, 2017

Why? You can't take the deduction.

pilot25 · Dec 28, 2017

t84a said:
Why? You can't take the deduction.

Because she told me they don't do prepayment of property taxes. Clearly they do and have for 5 years. Regardless if I can take the deduction or not, she steered me in the wrong direction. I'm sure I wasn't the first person to call about this since its been a hot topic since the bill was signed.

I'd throw in govt. employee jokes but DA might get his panties in a bunch again.

fabsroman · Dec 28, 2017

pilot25 said:
Because she told me they don't do prepayment of property taxes. Clearly they do and have for 5 years. Regardless if I can take the deduction or not, she steered me in the wrong direction. I'm sure I wasn't the first person to call about this since its been a hot topic since the bill was signed.

I'd throw in govt. employee jokes but DA might get his panties in a bunch again.

It is like anything out there. Some government employees suck, others are good. Some attorneys suck, others are good. Some cyclists suck, others are good. Some hunters suck, others are good. Some gun owners suck, others are good. Some LEOs suck, others are good. Some people suck, others are good.

Looks like you got a crappy government employee. Now, it might be a silver lining though. Her stupidity/incompetence might have saved you from making a significant outlay of cash that you would not have been able to get a deduction for. Based upon what I have been reading, unless you receive a bill from the county and are actually liable for the property tax, pre-paying 2018 real property taxes will not lead to a valid 2017 deduction.

pilot25 · Dec 28, 2017

fabsroman said:
It is like anything out there. Some government employees suck, others are good. Some attorneys suck, others are good. Some cyclists suck, others are good. Some hunters suck, others are good. Some gun owners suck, others are good. Some LEOs suck, others are good. Some people suck, others are good.

Looks like you got a crappy government employee. Now, it might be a silver lining though. Her stupidity/incompetence might have saved you from making a significant outlay of cash that you would not have been able to get a deduction for. Based upon what I have been reading, unless you receive a bill from the county and are actually liable for the property tax, pre-paying 2018 real property taxes will not lead to a valid 2017 deduction.

Probably true but I pay in July so I would lose say maybe a 4% return over 7 months on that outlay. The gamble for the increased deduction could be much more.

I can still do it tomorrow anyway.

edit: I have a lot of friends in the federal govt. hamster wheel. They are far from dumb but not exactly motivated workers either.

Fredcohunter · Dec 28, 2017

fabsroman said:
Any chance you are a member of the Maryland Society of Accounting and Tax Professionals? If so, maybe we can get together at a CPE seminar.

Our firm uses mostly MACPA or AICPA for CPE. And yea, the only thing worse than having to call the IRS is trying to deal with DC office of tax and revenue.....

Property Taxes Frederick?

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