Updated at 7:43 p.m. ET
Part of the Republican tax overhaul that President Trump signed into law last week has homeowners around the country doing something unusual: rushing to pay their 2018 property taxes well before the due date.
That's because the new law includes a $10,000 cap on the amount of state and local taxes people can deduct on their federal returns. Before, if someone paid $24,000 in property taxes — as some people in higher tax states like New York and California do — and then paid $20,000 in state and local income taxes they were allowed to deduct $44,000 on their federal tax return. Now that number is capped at $10,000. The change could cost some people thousands of dollars.
In response to questions from taxpayers and preparers, the Internal Revenue Service issued new guidance Wednesday. The IRS says taxes can be prepaid and deducted from federal returns if local authorities levy the taxes in 2017 and they are paid by Dec. 31.
"I'm sending my checks in today," said Vanessa Merton of Hastings-on-Hudson, N.Y. She estimates the law change will cost her between $6,000 and $9,000. She hopes to delay that hit by prepaying next year's taxes before Dec. 31 so she can deduct them on her 2017 tax return.
Merton says she is the fourth generation of her family to live in her large home. When she was growing up, she says, Hastings-on-Hudson was a factory town, but then wealthy people moved in and now property values — and taxes — have increased. She predicts that without the ability to deduct all local taxes on federal returns, some people in her community may have to move.
"We are all really wondering, calculating and trying to figure out if it's going to be possible [to stay] in the homes that we have cherished for a very long time," said Merton.
Merton works as a law professor and also is vice chair of her local Democratic Party committee. She sees politics at play in the new law, since most states with higher taxes tend to vote for Democrats over Republicans.
That echoes criticism New York Gov. Andrew Cuomo has voiced against the tax overhaul law. Cuomo signed an executive order last Friday making it easier for people to pay their taxes early and make partial payments.
That had local tax offices fielding calls the day after Christmas as homeowners tried to figure out how much they should pay. An automated message at the Nassau County Department of Assessment asked people to call later because, "all assessment assistance personnel are busy with other callers."
In neighboring New Jersey, accountant Tracy Beveridge said she has been fielding calls and emails from clients. She warns that not everyone should prepay property taxes and that it is difficult to offer simple guidelines — which is especially true for those who could be subject to a minimum tax, for example a married couple who earn more than $83,800 a year and file a joint return.
"If a client is in AMT — what they call an alternative minimum tax — there is no benefit to prepaying your taxes. It just negates the benefit and you're just out the cash," said Beveridge.
Beveridge said some people who would not be subject to the AMT could trigger it if they double up on paying next year's property taxes early.
Her advice is to consult with an accountant who can look over your previous return and offer advice. In the past few days, Beveridge said, she has examined dozens of her clients' returns and that "out of, probably, 80 that I've done already, I think, four it has benefited [to prepay property taxes]."
That benefit applies only to property taxes, she said, because the new law doesn't allow people to prepay income taxes.
ARI SHAPIRO, HOST:
Homeowners around the country are doing something unusual this week - rushing to pay their 2018 property taxes well before they're due. They hope to put off one effect of the tax overhaul that President Trump signed into law last week. It limits the amount of state and local taxes that can be deducted on your federal return. NPR's Jeff Brady reports that accountants are warning that not everyone should prepay their property taxes.
JEFF BRADY, BYLINE: Pity the accountants and tax office employees across the country who were hoping for a relaxing holiday.
(SOUNDBITE OF RINGING TONE)
BRADY: Call the Nassau County Department of Assessment in New York, and you're likely to hear this.
UNIDENTIFIED WOMAN: Please call back at a later time as all assessment assistance personnel are busy with other callers.
BRADY: Accountant Tracy Beveridge in Springfield, N.J., says what typically is a slow week for her is anything but this year.
TRACY BEVERIDGE: I don't remember the last time I went to the office the day after Christmas. And I was there at, you know, 8 o'clock this morning.
BRADY: The new tax law includes a $10,000 cap on the amount of state and local taxes people can deduct on their federal returns. For example, if you paid $24,000 in property taxes in the past, you could deduct all of that on your federal return. If you live in a state where income and property taxes are relatively low, this may not be an issue. But for many who live in higher tax states like California, New Jersey or New York, the cost of this change could run into the thousands of dollars.
VANESSA MERTON: I'm sending my checks in today.
BRADY: Vanessa Merton decided to prepay next year's property taxes now so she can deduct them on her 2017 federal return. She says growing up, her village of Hastings On Hudson north of New York City was a factory town. But a lot of wealthy people have moved in, and now property values are up.
MERTON: I'm fourth generation in this house. And it's a big, old house, very expensive to maintain and very expensive to heat. We don't heat it very much. I'm wearing three layers as I talk to you.
BRADY: Merton estimates this change could cost her $6,000 to $9,000 a year. She works as a law professor and also as vice chair of her local Democratic Party committee. Merton sees politics at play in the new law since most states with higher taxes tend to vote for Democrats over Republicans. Right now, though, she's focused on getting next year's tax payment in the mail by December 31.
Accountant Tracy Beveridge says not everyone should prepay their property taxes. And the best answer is not the same for everyone, especially for those who earn more than $83,800 and could be subject to the alternative minimum tax.
BEVERIDGE: If a client is in AMT - what they call an alternative minimum tax - there is no benefit to prepaying your taxes. It just negates the benefit. And you're just out the cash.
BRADY: And Beveridge says some people who would not be subject to the alternative minimum tax may trigger it if they double up on paying property taxes this year. Her advice is to consult with an accountant who can look over your previous return and offer advice. In the past few days, she's examined dozens of her clients' returns.
BEVERIDGE: Out of probably 80 that I've done already, I think four it has benefited.
BRADY: And Beveridge says prepaying only applies to property taxes, not income taxes. The law doesn't allow people to prepay those. Jeff Brady, NPR News.
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