A NEW TAX LAW IS HERE:
The new tax law was signed by President Trump last week. For a recap of the law, see last week’s edition of MacGray Matter by clicking here. For a good, online tax calculator to compare how your taxes might change next year, go to the Wall Street Journal online calculator here, and for another one click here.
SHOULD YOU PREPAY YOUR PROPERTY TAXES?:
Of course, with any tax question, call your personal tax professional. In 2017, people who itemize deductions on their federal return can deduct all state and local taxes and property tax. Beginning in 2018, so in a few days taxpayers who itemize can deduct a maximum of $10,000 n all state and local and property taxes combined. Again, check with your tax professional, but if you are not subject to the alternative minimum tax and you expect to itemize deductions this year, but not next year (because of the much higher standard deduction), it makes sense to prepay your property taxes and 2017. (It may also have made sense to prepay state and local income taxes for 2018 in 2017 but a last minute provision in the bill just signed by President Trump closed that strategy. State and local income taxes for 2018 paid in 2017 are not deductible against your 2017 taxes.) If you expect to itemize next year, it probably makes sense to prepay property taxes this year assuming you preserve $10,000 in state and local and property tax to pay for next year. If you expect to be covered by the Alternative Minimum Tax in 2017, there is no reason to prepay property taxes by December 31 because they are not deductible under the AMT. Got all that? Remember, I am not your tax professional and this newsletter can’t be construed as giving you tax advice for your specific situation. But I am happy to spur some thought and dialogue between you and your tax professional if it can save you some money. If you prepay your property taxes in 2017, you will not be alone. Apparently there is a rush as this article in USA Today reports.
THE HOME EQUITY LOAN INTEREST DEDUCTION IS DEAD:
In an earlier version of this newsletter, before the tax bill was finalized, I reported that the interest you pay on home equity loans for loans already in existence could remain deductible in 2018. That is not true. Under the final bill, there is no grandfathering. In 2018 you will not be able to deduct interest you pay on a home equity loan, even if you took the loan out years ago.
One of the byproducts of a healthy economy, and strengthening consumer confidence, are slipping savings rates. People who are less nervous about the future stop saving for that rainy day. I don’t like it, of course. You should always be saving for a rainy day, or college, or retirement, or greater financial independence, or meaningful gift giving, or….. Currently, Americans are saving at the slowest pace in ten years. The personal savings rate in November fell to 2.9%, falling below 3% for the first time since November 2007.
Despite the tax bill finally reaching the finish line, and some positive economic data, markets were quiet heading into the Christmas weekend, a traditionally slow trading time of the year. Friday saw the second-fewest shares changing hands of any full day this year. It was a week of quiet gains as all major U.S. stock indices registered modest gains.
SAVINGS SLIPS: https://www.wsj.com/articles/u-s-consumer-spending-rises-in-november-savings-rate-at-ten-year-low-1513949525
SHOULD YOU PREPAY YOUR PROPERTY TAXES?: https://www.sfchronicle.com/business/networth/article/Should-you-prepay-your-state-income-and-property-12448762.php; http://www.businessinsider.com/prepay-property-taxes-before-trump-tax-plan-passes-2017-12
THE HOME EQUITY LOAN INTEREST DEDUCTION IS DEAD: https://www.cnbc.com/2017/12/20/here-are-the-finalize.html