The Tax Cut and Jobs Act (the “Act”) limits the deduction for state property and income taxes to $10,000 per year starting in 2018. Many taxpayers will be over that just for NJ income taxes and will get no benefit from paying property taxes going forward. If that is the case, it may make sense to pay 2018 property taxes in 2017. The Act prohibits getting a deduction for paying 2018 NJ income taxes in 2017, but it does not prohibit paying and deducting 2018 property taxes in 2017. The municipalities have already issued the tax bills for the first two quarters of 2018 and they can be paid in 2017. The bills for the third and fourth quarters have not been issued. The municipalities apparently cannot accept payment for property taxes where the bill has not been issued. Senator Sweeney has asked that the Division of Local Government Services tell the local municipalities to quickly issue property tax bills for the third and fourth quarter of 2018. If this is done, a homeowner may be able to go to the tax office and pick up and pay the tax bill for the third and fourth quarters at the same time.
If a taxpayer is subject to the Alternative Minimum Tax, then there usually will not be a benefit to the prepayment in 2017. However, in some cases a prepayment may still reduce taxes even if a taxpayer is subject to the Alternative Minimum Tax. It may not be possible to do detailed Alternative Minimum Tax projections between now and the end of the year. In any event, if the payment of property tax in 2018 will not be of any benefit, there is no harm in paying them in 2017 to the extent possible (other than the “use of money” cost).
Michael A. Kulzer is a shareholder in the firm. Mr. Kulzer earned his J.D. degree at the Rutgers University School of Law, where he was awarded the Prentice Hall Award for outstanding performance in the area of taxation, he earned his LL.M. in Taxation at New York University. Mr. Kulzer’s particular areas of expertise include estate planning, corporate taxation and business planning.