The GOP tax bill, as we’ve already discussed, has winners (the rich) and losers (pretty much everybody else.) And as an early preview of the chaos that awaits us all as April 15th, 2019 inches closer, there’s already a massive problem as homeowners try to figure out if they can deduct their property taxes. And even if you don’t own a house, what’s happening now should worry everyone.
- The GOP’s tax bill caps the total state and local taxes (SALT) deductions at $10,000: This includes property taxes, and considering the national average property tax is about $3000, that’s a lot of money on the table. Also and on average, Americans pay about 9.9% in state and local taxes, so based on 2017’s annual average salary, you have to be dead average in both property taxes and other state taxes in order to not get dinged.
- So homeowners are hoping to prepay their property taxes for 2018 now and deduct them on their 2017 tax return: Pretty simple, right? Take the hit now, but take it out of your taxes while you still can, and you at least can delay the pain for another year.
- Except that’s not how it works: In order for your property taxes to be deductible, they have to be assessed first under IRS rules. Paying your 2018 property tax early might spare you some pain come the next tax day, but it won’t save you any money if you don’t have a state bill in hand already. Some states, like New York, are already on this particular ball, with the governor issuing an emergency order to allow homeowners in the state to prepay and get the savings.
- What do I care? I don’t own a house: This is a preview of the sheer chaos the GOP’s tax bill is going to cause in 2019. Keep in mind that this was a hastily written bill rushed through Congress with no hearings or consideration of the language or the effect. It’s 500 pages of law tax attorneys, financial experts, and others will spend the entire year sorting through, and it’s extremely unlikely there won’t be a glaring problem or two, quite possibly more, that needs to be fixed.
In short, the GOP, in its rush to score even one victory, may have instead chucked a bunch of financial time bombs into our midst. Homeowners trying to get in under the wire may just be the first wave of a lot of panic.