Prepaying property tax

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Submitted by bewildering on December 2, 2017 - 10:27pm

So the GOP plan is going to get rid of itemizing my taxes next year.

Does anyone know if I can prepay my property taxes due to San Diego in April 2018? I have an escrow account with my loan servicer.

Submitted by scaredyclassic on December 2, 2017 - 10:55pm.

yeah. what about making next years loan payments in advance. deduct the interest? might be worth making a LOT of payments.

what if you just sent 25000 to ca state as advance payments on tax liab?

Submitted by bewildering on December 2, 2017 - 11:04pm.

Prepay interest on the loan? Is that possible? Does that make sense?

EDIT: I googled - I think it is possible to pay your January payment in December to count for 2017. But no other prepayment is allowed.

Submitted by henrysd on December 2, 2017 - 11:25pm.

No much difference unless you have a large property tax bill. Both the passed senate and house bill now have property tax deduction up to $10K. I wouldn't think the final compromised house and senate bill will drop that as it as it was added last day in senate for Sen. Collins. Dropping it would cause her to cast No voting in final combined bill.

Submitted by bewildering on December 2, 2017 - 11:39pm.

They are getting rid of both the mortgage interest deduction and the state income tax deduction. And the standard deduction is going up to 24400. In my situation that means I will not be itemizing for 2018 taxes, I'll take the standard deduction. Therefore I will not be claiming property tax for 2018.

Submitted by SK in CV on December 3, 2017 - 8:49am.

Neither house nor senate bill eliminates home mortgage deduction, though there are some limitations. Those limitations will probably end up only applying to new mortgages. State & local income and property taxes are limited and eliminated. Medical and miscellaneous are eliminated. Accelerating property taxes makes sense, particularly if the increased standard deduction will be more than your actual itemized. If that's the case, accelerating any charitable contributions also makes sense.

Submitted by flu on December 3, 2017 - 9:30am.

I could be wrong about this, but I think awhile ago, i tried to make mortgage payments due the following year in the current tax year, but when I got my statement, only interest paid applicable to the current year was listed. Maybe I am wrong. İt's been awhile.

Property tax deduction you can pay up front, but if you are subject to AMT, it might not matter since property tax payments don't count towards AMT tax deduction.

Submitted by andymajumder on December 3, 2017 - 9:56am.

Senate version of the bill preserves mortgage interest deduction up to 1M mortgage and doesn't change it at all, new buyers are also eligible for that, property tax deduction capped at 10K. While in committee to hammer out the final bill, its possible that the cap could be increased slightly and be used for both income and property tax, house republican members from blue states are trying to do that. Let's see what the final version comes out as.

Submitted by flu on December 3, 2017 - 10:06am.

Meanwhile...529 plans possibly extends to K-12 private school and 529 plan eligible for unborn child.....lol.....

Submitted by bewildering on December 3, 2017 - 11:17am.

Thanks all. I was obviously wrong about the mortgage interest deduction.

But I think I will still be taking the standard deduction in 2018. The state income tax deduction is a large part of my itemized deduction. Without the state income tax deduction, I do not think I will reach $24400.

I can prepay my January 1st 2018 mortgage payment. And I think that makes sense.

I have an Escrow account with my loan servicer. If I pay the April property tax this month myself then I assume the servicer will adjust my Escrow payments. I'll try to call them on Monday to check.

Submitted by HLS on December 3, 2017 - 11:35am.

bewildering wrote:

Does anyone know if I can prepay my property taxes due to San Diego in April 2018? I have an escrow account with my loan servicer.

You definitely can pay it in December.
Send your 2nd half property tax payment directly to the county (not to your loan servicer)

(In March/April your loan servicer will send the same payment to the county, it will get returned to them and you will have an overage in your impound acct.
At a future point there will be an overage in your impound acct and it will get refunded to you)

As far as prepaying interest, it is tricky because the accounting systems are all automated,
Just because you make your January payment in December,
it isn't due until January 1st.
The 1099 that loan servicer issues for 2017 interest paid may not reflect your early January payment.

SK can confirm, but paying your 2nd half property tax bill is an acceptable deduction for 2017.

Submitted by HLS on December 3, 2017 - 11:44am.

bewildering wrote:

I can prepay my January 1st 2018 mortgage payment. And I think that makes sense.

I have an Escrow account with my loan servicer. If I pay the April property tax this month myself then I assume the servicer will adjust my Escrow payments. I'll try to call them on Monday to check.

I don't think you are going to get your loan servicer to adjust your impound account payments. Eventually you will get the overage refunded to you.
(You may even get a decent rate of interest on the excess funds in your account) Audits are usually done once a year, on their schedule.

Your loan servicer has a specific amount that they expect every month to keep your account current.
You really don't want to mess with that.

You might be able to ask them to remove your impound account if you are willing to pay taxes & Insurance on your own going forward.

Please report back if they tell you that will adjust your payment manually.

Submitted by harvey on December 3, 2017 - 1:53pm.

I've often paid the second installment of property taxes in the prior year and taken the deduction. I will certainly do it this year on my primary for the reasons the OP listed. The flexibility is one of the reasons I never use a tax impound.

For rental properties I believe that the changes to limits on property taxes won't apply, since property taxes on rentals are deducted as a business expense. But I am not able to find any confirmation on this. SK?

Submitted by harvey on December 3, 2017 - 1:52pm.

scaredyclassic wrote:
yeah. what about making next years loan payments in advance. deduct the interest? might be worth making a LOT of payments.

what if you just sent 25000 to ca state as advance payments on tax liab?

The common sense answer to this would be that the IRS isn't going to allow deductions for expenses that don't exist at the time you pay. You can pre-pay your property taxes because they represent an actual liability - you got a bill from the tax collector.

If you sent them more than you owe in order to maintain a positive balance on your account in anticipation of what you may have to pay in the future, I highly doubt the IRS is going to allow that as a deduction. Same idea applies to prepaid interest - you don't owe interest until you have actually carried a balance on the owed principal.

If any of this were possible, it would be regularly used and abused.

Submitted by scaredyclassic on December 3, 2017 - 2:48pm.

yeah, it was just a thought.

too bad the contract couldnt be altered. no reason the loan servicer would really mind getting interest in advance. and if it could be deducted now, money is being left on the table by paying later.

so if you have the cash on hand and are definitely staying put, why not just amend the loan docs to agree that interest in say years 2-4 will become immediately payable in year 1 of the loan. and not payable in years 2 -4.

youd immediately get a large deduction on the payment. , the lender would get the cash. the gov. would sort of get screwed.

. theres probably therefore a rule,against this. but maybe theres some other creative workaround?

what if you refinanced to a new type of creative loan, one that only needs to exust for current transition period, say a 7 year loan, where you have a balloon payment of all interest immediately and all payments are all principal for next 7 years?

we could call it the emergency tax refi of 2017 loan...

Submitted by harvey on December 3, 2017 - 4:48pm.

scaredyclassic wrote:

so if you have the cash on hand and are definitely staying put, why not just amend the loan docs to agree that interest in say years 2-4 will become immediately payable in year 1 of the loan. and not payable in years 2 -4.

Because whatever that payment was would no longer be interest. It would be a fee or something else.

If you paid off the loan before year 2, does that bank give the prepayment back also?

There are all sorts of weird exceptions in tax law, but all of this would be inconsistent with basic accounting principles. Basically you can't have interest unless there is a principal balance and time has passed. If interest is due up front, it really isn't interest.

Submitted by scaredyclassic on December 3, 2017 - 8:46pm.

ok then.

what about a variable rate mortgage where year one has 25 perc interest, and years 2 thru 9 have 1 perc interest?

Submitted by flu on December 4, 2017 - 7:35am.

Are things really going to be that bad, if you factor in the ridiculous equity markets gain?

Yes, it will suck if you live paycheck to paycheck, have no investments, have no financial plan to invest...But I doubt many of us piggs are worker bees alone. Many probably are heavily invested too.

Does paying an extra few grand in taxes matter more than dow rising 400 points in a few days?

Just curious.

Submitted by harvey on December 4, 2017 - 8:39am.

scaredyclassic wrote:
ok then.

what about a variable rate mortgage where year one has 25 perc interest, and years 2 thru 9 have 1 perc interest?

If you want those terms, I'd be happy to give you a loan.

Submitted by scaredyclassic on December 4, 2017 - 8:49am.

Well, whatever comes out to market. 15 percent year 1, .15 percent next X years. Then deduct all the interest now.

Prob not kosher, something about it having no legitimate business interest or something

Submitted by NotCranky on December 4, 2017 - 1:48pm.

you were talking about a second dwelling on your parcel , scaredy. You might want to look into how much mortgage and property tax you can take off the top of the rental income from a 2 on 1.

Can anyone lay out how that works? In my case it seems to be great, but I don't have much knowledge about how my accountant does it(justifies it with the IRS) .

Submitted by bewildering on December 4, 2017 - 5:39pm.

HLS wrote:

I don't think you are going to get your loan servicer to adjust your impound account payments. Eventually you will get the overage refunded to you.
(You may even get a decent rate of interest on the excess funds in your account) Audits are usually done once a year, on their schedule.

Your loan servicer has a specific amount that they expect every month to keep your account current.
You really don't want to mess with that.

You might be able to ask them to remove your impound account if you are willing to pay taxes & Insurance on your own going forward.

Please report back if they tell you that will adjust your payment manually.

Thanks for the input.

I chatted with a representative. They confirmed what you had stated. They have no problem with me paying the property taxes, and will simply send a refund after the annual Escrow accounting in May 2018. I have already paid the mortgage payment due on January 1st. I read online that as long as you pay early enough then that month will count towards 2017 on your 1098.

I also notice the idea has gone mainstream:

https://www.cnbc.com/2017/12/04/homeowne...

ps I am stuck with an impound account AFAIK. Even though my LTV is about 60%. I should have asked for no impound account at my last refi.

Submitted by zk on December 4, 2017 - 5:54pm.

Thanks for the idea, bewildering. I called my tax lady and she confirmed that you can pay your April property tax this year and deduct it. She also confirmed that, in my particular situation, it will be a good idea.

In my case, it's a good idea whether the tax plan passes or not. My situation is a bit unusual, and I'm not sure whether it would be advantageous in a lot of situations. Her take in general is to plan and pay taxes as if the tax bills will not pass. I didn't ask, and she didn't say, whether this was because she thinks it's not going to pass or for some other reason.

Submitted by flu on December 4, 2017 - 8:06pm.

.

Submitted by HLS on December 4, 2017 - 6:28pm.

bewildering wrote:
HLS wrote:

I don't think you are going to get your loan servicer to adjust your impound account payments. Eventually you will get the overage refunded to you.
(You may even get a decent rate of interest on the excess funds in your account) Audits are usually done once a year, on their schedule.

Your loan servicer has a specific amount that they expect every month to keep your account current.
You really don't want to mess with that.

You might be able to ask them to remove your impound account if you are willing to pay taxes & Insurance on your own going forward.

Please report back if they tell you that will adjust your payment manually.

Thanks for the input.

I chatted with a representative. They confirmed what you had stated. They have no problem with me paying the property taxes, and will simply send a refund after the annual Escrow accounting in May 2018. I have already paid the mortgage payment due on January 1st. I read online that as long as you pay early enough then that month will count towards 2017 on your 1098.

I also notice the idea has gone mainstream:

https://www.cnbc.com/2017/12/04/homeowne...

ps I am stuck with an impound account AFAIK. Even though my LTV is about 60%. I should have asked for no impound account at my last refi.

There is no reason to make the January payment this early.
Servicers have automated systems. December interest isn't due until Jan 1st.

Depending on when your servicer sends out your next statement, you run the risk of having your payment credited ALL to principal as a reduction, and not to your January payment.
Make sure that your payment posts the way you intend it to.

Always safer to wait until statement is printed. Payment made the last week of December counts the same as payment made today.

What's your loan balance & current interest rate ?
You may benefit by refinancing to a lower rate at no cost AND get rid of impound acct. Saving just a 1/8th of a point (.125%) can save a lot of money over time.

Submitted by scaredyclassic on December 5, 2017 - 7:36am.

flu wrote:
Are things really going to be that bad, if you factor in the ridiculous equity markets gain?

Yes, it will suck if you live paycheck to paycheck, have no investments, have no financial plan to invest...But I doubt many of us piggs are worker bees alone. Many probably are heavily invested too.

Does paying an extra few grand in taxes matter more than dow rising 400 points in a few days?

Just curious.

theoretically, this tax plan significantly lowers your property values. itemizing loses value, flus real estate empire lises value

Submitted by SK in CV on December 5, 2017 - 8:47am.

scaredyclassic wrote:
flu wrote:
Are things really going to be that bad, if you factor in the ridiculous equity markets gain?

Yes, it will suck if you live paycheck to paycheck, have no investments, have no financial plan to invest...But I doubt many of us piggs are worker bees alone. Many probably are heavily invested too.

Does paying an extra few grand in taxes matter more than dow rising 400 points in a few days?

Just curious.

theoretically, this tax plan significantly lowers your property values. itemizing loses value, flus real estate empire lises value

Lower top marginal rates reduces the government subsidy for mortgages for medium and high wage earners. Same thing with the loss of the deduction for state taxes (and possibly property taxes). I don't know if it will be significant, but the effects on residential real estate values could be material in some price ranges.

The financial markets are pretty much in the same trajectory they've been in for more than 8 years now.

If you're at risk of not itemizing with a larger standard deduction, move all deductions into this year that you can. Or if you're in a top marginal bracket, do the following:

Pay your 2nd half taxes now.

Make your January mortgage payment before the end of the year. If you pay it online, get it in by 12/31 and it will be reflected properly on your year end statement.

Get rid of stuff to goodwill now. Next year's church donations now.

Business dues, investment expenses, etc. if you have deductible employee business expenses now if they can be accelerated.

If it's likely you'll owe state taxes, make an estimated tax payment of what you will now and deduct this year. (Be VERY careful with this one if you get any ACA premium tax credit, a refund next year is counted as income.) But be careful of AMT.

If you pay your own insurance premiums and have deductible medical expenses, make sure you pay Jan premium this month.

Submitted by bewildering on December 5, 2017 - 5:22pm.

HLS wrote:

There is no reason to make the January payment this early.
Servicers have automated systems. December interest isn't due until Jan 1st.

Depending on when your servicer sends out your next statement, you run the risk of having your payment credited ALL to principal as a reduction, and not to your January payment.
Make sure that your payment posts the way you intend it to.

Always safer to wait until statement is printed. Payment made the last week of December counts the same as payment made today.

What's your loan balance & current interest rate ?
You may benefit by refinancing to a lower rate at no cost AND get rid of impound acct. Saving just a 1/8th of a point (.125%) can save a lot of money over time.

OK. Good news. My servicer accepted my Jan 1st payment. And the interest paid is reflected in my 2017 interest amount.

It also looks like my Servicer paid the property tax installment for me. The property tax was due in March 2018, but they paid it on Dec 4th. I actually owe them $115 on my Escrow account. I guess the representative with whom I chatted must have understood that I wanted them to pay my property tax early.

I refi-ed last year to 3.375% on my 30 year. I guess that will be my last refi. I have refi-ed 3 times in 3 years. The yield premium spread that you mentioned in another thread made a lot of sense, and I got rid of all my PMI after the 2nd refi. It is really a shame I do not know your real life identity, otherwise, I would suggest you for friends who are looking to buy.

Submitted by HLS on December 5, 2017 - 5:43pm.

So your servicer has made TWO property tax payments in the last few weeks for you and you are only $115 dollars short ?

Please confirm that so you get the 2017 deduction that you want.
Unusual that they paid it for you that fast (you called yesterday)
but not impossible.

No limit to number of times you can refi. ;-)

You probably know that you can adjust your payment and pay off in any term that you want; you don't need to start over at 30 years each time. They key is your interest rate.

You have a great rate and no PMI = Excellent~ HLS

PS: Private message sent

Submitted by flu on December 5, 2017 - 7:56pm.

scaredyclassic wrote:
flu wrote:
Are things really going to be that bad, if you factor in the ridiculous equity markets gain?

Yes, it will suck if you live paycheck to paycheck, have no investments, have no financial plan to invest...But I doubt many of us piggs are worker bees alone. Many probably are heavily invested too.

Does paying an extra few grand in taxes matter more than dow rising 400 points in a few days?

Just curious.

theoretically, this tax plan significantly lowers your property values. itemizing loses value, flus real estate empire lises value

For rental properties, doesn't mortgage, property tax, and just everything else count on as cost of running your rental? So none of that changes right?

Submitted by bewildering on December 5, 2017 - 7:48pm.

HLS wrote:
So your servicer has made TWO property tax payments in the last few weeks for you and you are only $115 dollars short ?

Please confirm that so you get the 2017 deduction that you want.
Unusual that they paid it for you that fast (you called yesterday)
but not impossible.

No limit to number of times you can refi. ;-)

You probably know that you can adjust your payment and pay off in any term that you want; you don't need to start over at 30 years each time. They key is your interest rate.

You have a great rate and no PMI = Excellent~ HLS

PS: Private message sent

Cheers. Yes, it does appear there are two payments. I am trying to work our the payment history, but I think it makes sense. The $115 would be ~$700 if I had not paid the January 1st payment early.

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