Originally Posted by
busdriver12
The point may be moot, as some states won't even allow it. But if you're going to get hit with the AMT this year, it could be futile. I'd run it through a tax calculator and see what it says.
State and local taxes: Prepaying state and local income and property taxes that are due early next year can reduce your 2017 federal income tax bill, because your total itemized deductions will be that much higher.
Warning: Prepaying is not a no-brainer: The prepayment strategy can backfire if you will owe the alternative minimum tax (AMT) for this year. That’s because write-offs for state and local taxes are completely disallowed under the AMT rules and so are most miscellaneous itemized deductions. So prepaying these expenses may do little or no tax-saving good for AMT victims. Solution: ask your tax adviser if you’re in the AMT mode before prepaying state and local taxes or miscellaneous deduction items. The good news: both the House and Senate tax reform bills would eliminate the AMT for 2018 and beyond. Fingers crossed!
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Starting next year, the new law limits your deduction for state and local income and property taxes to a combined total of $10,000 ($5,000 if you use married filing separate status). Foreign real property taxes can no longer be deducted. So no more property tax write-offs for your place in Cabo. However, you can still choose to deduct state and local sales taxes instead of state and local income taxes.
Year-end planning impact: Traditional year-end tax planning advice includes prepaying state and local taxes that would otherwise be due early next year. That way, you get a bigger deduction on this year’s return. However, the new law says you cannot get any tax-saving benefit from using this strategy to prepay state and local income taxes. Specifically, you cannot claim a 2017 deduction for state or local income taxes that are imposed for a tax year beginning after Dec. 31, 2017. How this rule could be enforced is a mystery. The good news: you can still prepay state and local property taxes before year-end and claim a 2017 deduction. That could be a really good idea in view of the new $10,000/$5,000 deduction limitation that takes effect next year. However, if you will be an alternative minimum tax (AMT) victim this year, deductions for state and local property taxes (prepaid or otherwise) aren’t allowed under the AMT rules. So prepaying could do you little or no tax-saving good.
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