MoneyDo: Prepare To Pay Your Property Taxes


‘Tis the season for property tax bills!

It’s that time of year when most property owners will be getting their real estate tax bills in the mail. Last week, we talked about charitable giving, and while some people might not be doing anything special in that area, taxes are one of those seemingly inevitable parts of life.

There are a couple things to consider as you go about paying your property tax bill.

  • Do you have the cash available to pay the real estate tax bill? If not where will the funds come from?
  • It’s important to consider the tax implication of accessing funds to pay for that bill. Will you be selling a taxable asset, such as a stock or mutual fund, and realizing gain or pulling money from a retirement account if you are retired.
  • Are you in escrow through your mortgage lender? Beware if they would mail you the escrow check to pay the taxes or if they pay them on your behalf.

When should you pay the bill?

  • In the state of Wisconsin you have the ability to pay the bill either in 2017 or 2018.
  • You may also have the ability to pay in installments.
    • This can help if you need some time to access the funds to pay for the bill.

Income tax considerations of when to pay the bill.

  • Are you subject to Alternative Minimum Tax (AMT) and therefore would not receive a federal benefit for paying in 2017?
    • If you are subject to the AMT structure, real estate taxes are not an allowed deduction.
  • Do you itemize or take the standard deduction?
    • If you take the standard deduction you would not receive a federal deduction for paying your real estate taxes, but beware of the Wisconsin or state benefits that might be affected.
  • With tax reform looming you may not be itemizing in the future years and should consider paying before the end of the year to receive a benefit in 2017.
  • With the doubling of the standard deduction it will make it harder to itemize.
    • The proposed limit on the amount that would be allowed in 2018 as a deduction would be limited to $10,000 a year.

Caution:  There has been a lot of talk over the years about ‘doubling up’ on real estate taxes.  This means that you would have paid the 2016 bill in January of 2017 and then pay the 2017 bill in December of 2017, thereby receiving two deductions on your federal tax return.

Beware that by doing this you may loss a $300 Wisconsin credit that is provided in the year you pay your real estate taxes.  In the example above you would loss the credit in 2016, but the federal savings in 2017 might exceed the loss of that.