Part 1 - Introduction

As I imagine most of you are aware income taxes has been on a roller coaster this week. Based on the new tax law many people will not be itemizing in 2018. That means that they will not be benefiting from their deductions. However, 2017 is still governed by the old tax law so we can still pay for tax deductible items. Naturally the word went forth to give charity now. That is fairly obvious. The other thing that many people did was to pay next year’s real estate taxes. However, on Wednesday afternoon the IRS announced that you could not do that.

Part 2 – Now What

However, I am still advising some people to continue prepaying. I might be wrong but here is why I am saying this.

1-The IRS ruling might be reversed. People will be calling their elected officials and complaining.

They will argue that they already paid. The proverbial horses are out of the barn.

2-The ruling has said that if the taxes have been assessed then it is ok. The word assessed is vague. Here Maryland we get assessed every 3 years and one could argue that we have been assed already

For the 18-19 taxes.

3 Many people feel that the ruling is absolutely against generally accepted approach to income taxes. Income taxes are determined based upon cash basis. That means if you give charity early then the date of the donation is what rules.  This new ruling could be challenged in the courts.

4-Many governments said you could pay early. Baltimore County even created a new tax form. Could that qualify as an assessment?

5– If one does not prepay real estate taxes then for sure next year you will not benefit. At least 2017 is still up in the air and you have a fighting chance.

6-You need to pay your real estate taxes in 2018 and by paying it early you are really saving a lot. The “return on investment“ is very large and at this point in time is worth trying to get it and then we will see where things go on this.

Part 3 Now the “But”.

Therefore, if funds are limited and it is either charity OR real estate taxes – then I would play it safe by giving charity and that is for sure deductible. Why take chances?  Prepaying Real estate taxes should only be done by people who have really maxed out their charities. And let’s face it – you can always give more.

Regarding charity remember the following.

1-if you mail a check it is the date you mail it that is enough. Not when it is cashed.

2-if you charge it on a credit card then that is enough. You do not have to pay the credit card in 2017.

3-you can therefore go online to many organizations on Sunday and contribute by credit card.

4-Here in Baltimore you can buy Agudah Scrip which can then be distributed in 2018.

5 – Lastly clean out the house of all your old stuff and give away your old clothes. The goodwill store on Fallstaff and Reisterstown is open Sunday on December 31st. They told me on the phone you can drop-off from 11-4. Great opportunity to clean house and save money. Make very careful records. I would photograph as much as possible. There are price lists online that give guidance on how to value your stuff.

Part 4 - Conclusion

Play it safe with charity but if you prepay real estate taxes you might prevail when the dust settles.

Good luck!

Eli Pollock CPA can be reached at elipollock2@yahoo.com or by calling 410 358 4922