With deduction changes, should you pay next property taxes now?
County treasurers are seeing a healthy uptick in homeowners prepaying next year's property taxes, thanks to a provision in the pending federal tax overhaul bill that would cap the amount homeowners could deduct on their tax returns.
Currently, there's no limit to how much homeowners who itemize their income tax returns can claim as a deduction for property taxes, as well as state and local income taxes. But if Congress passes the bill, formally titled the Tax Cuts and Jobs Act, the maximum deduction homeowners can claim for property and income taxes is a combined $10,000 either filing single or jointly.
That would affect thousands of homeowners throughout the suburbs, tax experts said.
Cook County Treasurer Maria Pappas has expedited next year's first installment bill in order to allow more accurate prepayments. The bills are available at her website cookcountytreasurer.com and prepayments can be made online through Chase banks for the first time, she said.
So, should you prepay your property taxes?
"For the vast majority of people, it falls under the category of, it can't hurt," said Geoff Harlow, head of the tax division for Deerfield-based accounting firm Kessler, Orlean, Silver & Co.
That's because if the bill passes, anyone whose combined income and property tax deductions could exceed $10,000 in 2018 and beyond will receive one last full benefit of the uncapped deduction this year. Plus they can claim the new increased standard deduction in 2018 -- $12,000 for single filers and $24,000 for joint filers -- essentially double the current rate. And if the bill doesn't pass, taxpayers will have next year's property taxes already paid.
Property and income taxes generally make up the majority of itemized deductions, tax experts said. If those deductions are capped, most taxpayers would simply take a standard deduction because it would be more valuable than itemizing.
Harlow said currently about 1 percent of his clients take the standard deduction. However, if the federal tax bill passes, about 30 percent of his clients would be better off taking the standard deduction than itemizing, he said.
Jim McCullough, Lake County's chief deputy treasurer, said the most prepayments the agency has received in any year during the past two decades was 378. This year, so far, they're at about 700.
"By the beginning of next year, we'll have prepayments in the thousands, no doubt," he said. "It's become more of a deal because of the tax bill, and since our system isn't set up to handle this, it's been a lot more hectic, but we're managing."
DuPage County Treasurer Gwen Henry said the county has received $4.3 million in prepayments, "the most we've ever gotten before Dec. 31."
Essentially, homeowners can prepay an amount equal to their previous year's tax bill since the pending year's tax bill is unknown, officials said. They can prepay only up to one year. They will be billed for any increase in their taxes or sent refunds in the slim chance their property tax burden was reduced.
Prepayments need to be made by Dec. 29, the last business day of 2017, to count on this year's tax returns.
While opponents of the federal tax bill have derided the property and income tax deduction cap, supporters point to other savings taxpayers will receive. The bill would lower the tax rate for many -- by as much 9 percentage points for some. It also doubles the amount of the child tax credit to $2,000 per child and increases eligibility for that deduction.