Is it smart to pay property taxes every other year with a double payment in order to itemize?
I pay ,000 / year in property taxes. That is covered by the standard deduction on federal taxes. If i wait until 2010 i have two payments totaling more than ,000. I can then save money by itemizing. i have no other deductions except state income taxes.
Yes, that works, if you can do it without incurring huge penalties on your property tax bill. Pay two years in the same calendar year and then take the standard deduction in the off year.
No, because you’ll encounter penalties on the unpaid property taxes, and will face tax liens, possibly losing your property.
If you can do it without incurring penalties (example: if it is due in Jan, pay in one year in Jan and Dec for the next year), you will save a bit on taxes. This also works for medical expenses, if you can bunch them in one year. A lot depends on when the property tax is due and how early they let you pay it.
If you are on top of the game enough, it is smart. If you let things fall through the cracks, it isn’t.
You can pay property taxes earlier than due, but you would very likely encounter a penalty if later than due. And some states are stricter about that than others.
For example, in my IL county if you do not pay property taxes due that year, the property goes to tax sale auction later that year or early the following year (at which point they no longer accept personal or company checks). We don’t even get our tax bill until May, with installments due June 1 and Sept 1, so it is impossible to pay them in advance.
But I also have woods in WI with tax bill sent out in Dec, due Jan 31 and July 31. So every other year I pay current year installments and then pay next year before the end of that year.
So depending upon billing and due dates, you might be able to pay taxes due in 2009 and 2010 this year for a 2009 deduction. But putting off 2009 tax until 2010 could be risky, not only for penalty or tax lein, but it could default any mortgage on the property.
Aside from the penalty you are likely to incur by deferring your property taxes payment, you may also get no value of your deduction, if you are in the AMT (AMT calculation disallows deductions such as state income taxes and property taxes).
The IRS/tax industry phrase for this is called "bunching." I itemize in even numbered years. The big one is the property tax of course. I also bump about 1/2 of my charitable donations as well.
Run the numbers. I do this all the time and I don’t hit AMT.
As for penalties, look at your paperwork. My state times property tax bills so that they are due at any time from November 1st to January 31st. Other states time them for June 30th and while you can prepay your tax bill, there is no guarantee they will credit the payment properly. (This caused my dad severe heartburn one year.)
I have learned that for charitable donations, wait until mid-late January to make a timed contribution. If you do it the first week of January, they charity may put the wrong year in the confirmation letter.
You can do it, but you may also pay penalties for late tax payments.