The Tax Cuts and Jobs Act, enacted in December 2017, limited the itemized deduction for state and local taxes ("SALT") to $10,000 per tax filer (or $5,000 for a married person filing separately). Although this provision is scheduled to sunset after 2025, there is a reasonable possibility that this limitation may be lifted as soon as next year, as part of a comprehensive revision of the income tax code, depending on the outcome of the upcoming elections.
If your current SALT expenses are over the current limitation, there may be an opportunity to defer certain SALT expenses, such as your real estate taxes, until next year. Depending on the state in which you own real estate, your 2020 real estate taxes may be payable in 2020 but not due until 2021. For instance, if you own real estate in Florida, your 2020 real estate taxes are payable as of November 1, 2020, but are not delinquent until April 1, 2021. Should the tax code be changed to remove the SALT deduction limitation, and your expenses are greater than what the limitation would otherwise allow, you may wish to elect not to prepay your property taxes in 2020, but instead pay those expenses when they are due in 2021. You should speak to a tax adviser in your jurisdiction for specific advice.
Additionally, if your real property is mortgaged and payment of your property taxes is made from escrowed funds, you should discuss this with your lender promptly. Some lenders uniformly make these payments on the first date payment is permitted. In that case, some lenders may prefer to distribute the escrowed funds to you, the borrower, to make the payment directly. However, this must be addressed with your lender before payment is made.
Originally published by Duane Morris, October 2020
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