Paying Partial Maint. Fee and Taxes Deductibility

[CalGalTraveler]

With the new tax reform likely to pass, many pundits are advising to pay 2018 property taxes this year to enable the write-off.

We usually pay our HGVC fees in January. If we pay only the portion of the maintenance fee associated with property taxes in December, would that qualify for the property tax deduction in 2017 if we could demonstrate from the bill that the payment = property taxes?

 

[DeniseM]

I wouldn't worry about the tiny deduction you will get from the timeshare property tax, but if the new tax law passes, you will still be able to deduct up to $10,000 in property tax, and you only have to prove it if you get audited. (Not saying you shouldn't have proof for all write-offs - just saying that is when you need to have documentation.)

Here is a quote from the Washington Post - I'm not going to post the link because of political content.

You can deduct just $10,000 in state, local and property taxes:
Under current law, the state and local deduction (SALT) is unlimited. In the final GOP plan, people can deduct up to $10,000 (married couples are also limited to just $10,000). The House initially restricted the $10,000 deduction to just property taxes, but the final bill allows any state and local taxes to be deducted, whether for property, income or sales taxes.​

Folks - once again, please do not make this political or it will be closed.

 

[CalGalTraveler]

@DeniseM I don't intend to make this political...I want to discuss tax avoidance strategies with the new plan.

FWIW...we are WAAAAYYY over the 2018 $10k limit with property taxes from our first home and state income taxes. So making all payments before the end of the year helps.

As a strategy, if tax reform passes, we will likely establish residency in Nevada and either sell our home and rent in California part time since DH and I can work remotely, or (wild idea) stay as Calif residents and sell and lease back our Calif home by setting-up a property LLC for our home and rental properties so we can get the full property tax write-off (and also write-off all maintenance expenses to boot), and gain lower pass-thru taxation for all of the properties.

 

[DeniseM]

Hi CalGalTraveler - My warning was to others who might try take this thread in a political direction - your post was fine.

Curious - how much is your timeshare property tax?

 

[CalGalTraveler]

We have several timeshares. In total it would be several hundred dollars. At our tax rate every little bit helps.

I anticipate that property intermediaries and law firms to structure such sell and lease back agreements in high property tax states will emerge for homes worth > $1 million (which is a large portion of homes in Calif.) Several people we I know in the Silicon Valley have 5 million dollar homes and pay $50,000 in property taxes every year. They will figure out something out like this to avoid taxes.

 

[WinniWoman]

We have several timeshares. In total it would be several hundred dollars. At our tax rate every little bit helps.

I anticipate that property intermediaries and law firms to structure such sell and lease back agreements in high property tax states will emerge for homes worth > $1 million (which is a large portion of homes in Calif.) Several people we I know in the Silicon Valley have 5 million dollar homes and pay $50,000 in property taxes every year. They will figure out something out like this to avoid taxes.

Same issue here in NY with property/school taxes at the $10,000 limit and we have 3 timeshare weeks that we always deducted the property taxes in our returns. Now we won't be able to.

 

[CalGalTraveler]

Same issue here in NY with property/school taxes at the $10,000 limit and we have 3 timeshare weeks that we always deducted the property taxes in our returns. Now we won't be able to.

States like New York and California will likely compensate for loss in personal tax revenues from people moving out of state by increasing state taxes to corporations and pass-thru businesses to off-set because federal rates will be lower thus providing an opportunity for states to increase their corporate rates (i.e. pay less federal, more to state resulting in slight or no reduction in what corps are paying today). Many corporations and small businesses will not be able to leave the state easily (e.g. Wall Street, Silicon Valley and local businesses) and most will have little incentive to leave state because taxes will be at about same levels as before but shift from federal to state coffers.

FYI...the state of California is the 6th largest economy in the world and is larger than the GDP of entire countries like France.

 

[DeniseM]

We have several timeshares. In total it would be several hundred dollars. At our tax rate every little bit helps

I see - yes, that makes sense.

 

[DeniseM]

I just sent an email to our CPA to ask about this, and this is what he said:

Just yesterday, the IRS sent us a notice saying that if you pay in advance to beat the change in law it is not deductible - so just do what is normal.

 

[wilma]

I just sent an email to our CPA to ask about this, and this is what he said:

My tax advisor said something different—if you receive the tax bill in 2017 you can pay now and deduct even though it is for part of 2018. We received our 2017-2018 bill a few months ago. It is payable with two due dates of december 2017 and april 2018.

 

[DeniseM]

He said that the IRS just sent this out yesterday, so maybe it's new?

 

[CalGalTraveler]

I just sent an email to our CPA to ask about this, and this is what he said:

I am not a tax advisor but I believe the key word is "billed". In our county we are billed for both and can pay both this month. What you cannot pay is the first half of the bill for 2018 - 2019 because the bill for November 2018 has not been generated yet.

This has always been possible in the past however, I will check with our advisor on Monday.

 

[wilma]

He said that the IRS just sent this out yesterday, so maybe it's new?

We will see but since you could do it in the past i suspect it will be ok. IRS is issuing new guidance on something that hasn’t yet passed?

 

[isisdave]

So CalGal, where are your timeshares? My California timeshares always had tax billed separately by the county, and you can pay both halves of the 2017-2018 bill now. But not anything after that.

Never had a HGVC TS though. If the bill from HGVC says the tax is for the current tax year, and the bill is payable in 2017, AND they'll accept a partial payment (Marriott won't), it should be OK.

 

[klpca]

He said that the IRS just sent this out yesterday, so maybe it's new?

Yes. They figured folks would do this and set up a rule to prevent prepayment for 2018 items.

I suspect that fiscal year property taxes (2017-2018) will be fine, but paying 2018 state income tax won't be allowed.

 

[drlee]

It looks to me like the new law may have a few restrictions: you can deduct property taxes or income taxes but not both. Previous accounts have said property taxes on primary home only. And you have to be able to itemize (more than $24k in allowable deductions). For us, we’ll pay our fees this year and claim them. Current tax law permits deduction based on when paid. (FAQ on irs website. ). Hoping for the best, but if you live in a high tax state (like mine) with a minimal mortgage, your taxes (like mine) will go up. DINKs living in apartments, seniors with paid off houses, etc.



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[VacationForever]

Same issue here in NY with property/school taxes at the $10,000 limit and we have 3 timeshare weeks that we always deducted the property taxes in our returns. Now we won't be able to.

Are you currently paying more than $10K per year in property tax for your home and timeshares?

 

[VacationForever]

I just sent an email to our CPA to ask about this, and this is what he said:

I do not know why your CPA told you this. Personal income tax uses cash base accounting, which means regardless of when the bills are due, you report it in the income tax returns year when you incur the expenses. Anything that you pay in 2017 will be reported in 2017 returns.

 

[klpca]

Here is the part of the conference agreement that is causing the issue:

The conference agreement also provides that, in the case of an amount paid in a taxable year beginning before January 1, 2018, with respect to a State or local income tax imposed for a taxable year beginning after December 31, 2017, the payment shall be treated as paid on the last day of the taxable year for which such tax is so imposed for purposes of applying the provision limiting the dollar amount of the deduction. Thus, under the provision, an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017.

Link here: http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT- 466.pdf (I found it on page 81 of the conference agreement, or page 606 of the pdf). I honestly don't know where congress is in the process, and if this will be in the law or not, but this is where the issue is coming from.

 

[bogey21]

I'm amazed at how low taxes are in some states and how high they are in others.

George

 

[VacationForever]

I'm amazed at how low taxes are in some states and how high they are in others.

George

When we lived in California, my property tax was very high (close to 10K) and now my property tax is around 2.5K (0.5% of appraisal with a cap of 3% increase per year).

 

[klpca]

When we lived in California, my property tax was very high (close to 10K) and now my property tax is arouond 2.5K (0.5% of appraisal with a cap of 3% increase per year).

In San Diego our property tax rate is 1.25% with a two percent annual cap. The tax is based upon original purchase price adjusted for improvements plus the annual cap. We are in the same house that we bought in 1987 so our property taxes are about $3,500. Our next door neighbors pay a higher amount of tax (but the same rate) because they purchased recently.

 

[bogey21]

My Son bought a house in Fort Worth about a year ago. He paid $187,000. He just received his 2017 property tax bill. It is $3,767.88. I think it is payable in 2017 but not delinquent until early in 2018. This seems pretty reasonable to me particularly since there is no State Income Tax in Texas. Local sales tax rate is about 8.75%.

George

 

[WinniWoman]

The way I always look at taxes is you can jump through hoops all you want but in the end the Federal and State government will still get you anyway. There's always next year.....and something else...I don't bother trying to beat it. Then again, we don't have that big of an income and have fairly simple tax returns so we can't do much anyhow.

And- I still want to get out of NYS for more reasons than one. Yes- NYC has a busy economy, but it drains out the rest of the state in other ways. And NY is a pretty big state.

I still wish they would have done a flat tax and eliminated the iRS altogether.

 

[WinniWoman]

In San Diego our property tax rate is 1.25% with a two percent annual cap. The tax is based upon original purchase price adjusted for improvements plus the annual cap. We are in the same house that we bought in 1987 so our property taxes are about $3,500. Our next door neighbors pay a higher amount of tax (but the same rate) because they purchased recently.

Wow! That is cheap property tax! We also bought in 1987. The house was brand new on 10.5 acres. Paid $208,000. Our property and school tax (we get 2 separate bills here) then was about $4000. The house market value is now supposedly $240,000 (even with putting 100's of thousands of dollars of improvements into it over 30 years) due to specific local issues here and the taxes are now $10,000!!