ORIGINAL POST 12-22-17: Should I pay my 2nd Half property taxes now?
Question of the week: Should I pay my second half property taxes due in April now?
Answer: This great question came to me from my brother in-law (who by the way makes the perfect Old Fashioned with home grown blood oranges) who was inquiring about paying his second half taxes to Orange County before the end of 2017 due to the new federal tax regulations that go into effect in 2018.
I consulted with CPA’s extraordinaire, Lew Finklestein and Paul Scholz, for input on whether it makes sense given the new tax regulations for California property owners to pay their entire taxes due by the end of 2017 instead of waiting.
Yes, no, maybe. You know, the standard answer to most Questions of the Week.
I will preface this response with this very strong recommendation: before taking action on taxes always consult your professional tax preparer.
A quick look at why this question is important. The tax bill passed by Congress and signed into law today by President Trump has as one of its provisions a limit on deductions on your tax filing of $10,000 for State and Local Taxes (SALT). In California, and other states, where residents pay high SALT this regulation will reduce the deductions taken in the past when all such taxes were deductible on many tax returns (see next paragraph).
The primary consideration as to pre-paying the second tax installment is whether or not you will likely end up in the Alternative Minimum Tax zone for 2017 when preparing your federal taxes next year. If you it appears likely that you will be subject to AMT you may not have any deduction for the property taxes paid in 2017. Consulting with your tax preparer s/he may give you a good indication of whether you may be subject to AMT and advice on the property tax payment.
If you are not subject to AMT in 2017 then you should very much consider making that second half tax installment, especially if your state income and property taxes exceed $10,000. With the current policy of being able to deduct all SALT payments (depending on AMT) you will enjoy full deductibility of the second half taxes in 2017 whereas in 2018 you may not.
Again, before making such a decision and making the payment consult your tax preparation professional. I am not a tax preparer or CPA and the information above is for you to consider and prompt you to consult with a tax professional.
Thanks Dave for a great question.
Have a question? Ask me!
Remember, with Dennis it’s not just a mortgage, it’s your complete financial picture.
Data doesn’t take a holiday. While many businesses slow down a bit this time of year, economic data never slows down—the economy might but the data reporting the slowdown is constant. Because of this we have a couple of very important pieces of data that tell us how the economy is doing. Yesterday we had the third and final estimate for the 3rd Quarter Gross Domestic Product which showed a solid 3.2% growth for the quarter—the second quarter in a row with over 3% growth. Consumer spending is generally considered to be 60 to 70% of our economy, and it rose only 2.2% in the 3rd Quarter. The 3.2% growth in the quarter is most strongly attributed to very strong growth in non-residential fixed investment (companies, mainly, investing in real estate, capital assets like tools and machinery), which portends well for future job growth. Strong GDP growth is generally bad for mortgage rates, but the market had anticipated the data and there was little reaction.
Personal income and spending news today for November was somewhat positive. While personal income was up a modest 0.3% for the month, tamped down by a reduction in government transfers for the month to offset a very good increase of 0.4% for salaries and wages. The increase in income transferred to spending as consumer spending was up 0.6% for the month. With spending up more than incomes we saw a strong 0.3% slow down in the personal savings rate, which came in at 2.9%–the lowest in a decade. We continue to get disappointing news on inflation, the “core” rate (prices less food and energy) used by most to gauge inflation was up only 0.1% for the month and 1.5% from November 1.5%, well below the target rate for the Federal Reserve when making monetary policy. The data is mixed in regards to impact on rates as the low inflation numbers should support lower rates, higher consumer spending and income should lead to higher rates.
Rates for Friday December 20, 2017: We saw a spike in rates after the passing of the tax reform earlier in the week and today we barely have made it back to pre-vote rates, mainly thanks to the long holiday weekend and investors parking their funds in the safety of bonds and mortgages. As result Friday to Friday no change in rates.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:
30 year conforming 3.75% Flat
30 year high-balance conforming 3.875% Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
Yesterday we celebrated the lovely Leslie’s birthday at one of her, and our daughters’, favorite places: Disneyland. What a great way to get in the Christmas spirit. Decorated beautifully, the park was filled with visitors wearing their Santa hats, holiday Mickey ears, and Christmas sweaters. As usual there were little kids with big smiles and bright eyes. It was a bit chilly but the occasion of celebrating Leslie’s big day and the season kept us a bit warm.
Merry Christmas and full stockings to all!
Have a great week,
Dennis
