Recently a client asked if she could prepay her home property tax bill to deduct it in 2018. I think that you will find my response somewhat shocking:
The IRS will allow a deduction provided that you received a bill from the assessor. Contact the assessor to see if they will bill you now so that you can pay before year end assuming that will help your deduction. However keep in mind that the $10,000 state and local tax limitation includes all S&L taxes including income tax as well as property tax assessments. Accordingly if your state income tax paid in 2018 was $5,000 (hypothetically) then only $5,000 of property tax paid is deductible. Again, there must be a liability supported by a tax assessor’s bill in the case of property or an income tax return in the case of state income tax (which is why state income tax refunds are deemed taxable income provided that the excess was deducted in the previous year <the tax benefit rule>).
The other thing to keep in mind is that several other deductions were affected by the new tax law including the fact that the deduction for business and other miscellaneous expenses as well as job hunting and employment related moving and casualty losses are no longer deductible. The only itemized deductions that remain are medical (to the extent they exceed 7.5% of adjusted gross income for 2018 and 10% for 2019-2025), a maximum of combined state and local taxes paid (limited to the extent that there is a liability) and charitable donations. The standard deduction for persons who are married filing jointly is increased to $24,000 however the new law repealed the deduction for personal exemptions.
If you know anyone who pays alimony to a former spouse this deduction is eliminated but only for divorce alimony agreements executed or modified after December 31, 2018. Similarly recipients of alimony for agreements executed or modified after December 31, 2018 no longer include it in taxable income. For those agreements that were in place previous to January 1, 2019 payments are deductible without limitation by the payer and taxable income by the recipient.
Even worse (regarding the cost of employment related relocation) is tax if an employer either pays the relocation vendor (moving company, airline, etc.) directly OR reimburses the employee for the cost, the amount paid by the employer is not only included as wages subject to income tax (and tax withholding) but social security and Medicare tax as well. So not only will employees suffer economically by paying income AND social security tax on the expense reimbursement, this will create problems for people who changed jobs, it will force employers to gross up the amount paid to the employee so they are tax neutral OR opt to hire local nationals instead of relocating American employees.
Aren’t you happy that you asked for a brief lesson in the new tax law?