CA property tax > $10K, any options to deduct all?

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a010z
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CA property tax > $10K, any options to deduct all?

Post by a010z » Tue Oct 16, 2018 2:58 pm

Hi All,
Are there any options if the property tax I have to pay this year is more than $10K?
I can only deduct up to $10K, but was wondering if there is any legal workaround to be able to deduct the entire property tax bill...

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Artsdoctor
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Re: CA property tax > $10K, any options to deduct all?

Post by Artsdoctor » Tue Oct 16, 2018 3:24 pm

No. SALT is restricted to $10K on federal forms. However, your property taxes can still be deducted on your state income tax form.

(And remember that if you were in the AMT, we were not deducting real estate taxes anyway so you may not notice a big difference this year. Try running some projections with some of the online tax projection programs to see what you're in for.)

MarkNYC
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Re: CA property tax > $10K, any options to deduct all?

Post by MarkNYC » Tue Oct 16, 2018 3:47 pm

Artsdoctor wrote:
Tue Oct 16, 2018 3:24 pm

And remember that if you were in the AMT, we were not deducting real estate taxes anyway so you may not notice a big difference this year. Try running some projections with some of the online tax projection programs to see what you're in for.
This is an important point. In high tax states like NY and CA, many taxpayers in a certain income range paying high RE tax and high state income tax have been frequently hit by AMT. For many under the new law, the negative impact of the loss of exemptions and $10K limit on SALT deduction will be more than offset by the benefits of the effective elimination of AMT and the lower tax rates.

London
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Re: CA property tax > $10K, any options to deduct all?

Post by London » Tue Oct 16, 2018 4:23 pm

MarkNYC wrote:
Tue Oct 16, 2018 3:47 pm
Artsdoctor wrote:
Tue Oct 16, 2018 3:24 pm

And remember that if you were in the AMT, we were not deducting real estate taxes anyway so you may not notice a big difference this year. Try running some projections with some of the online tax projection programs to see what you're in for.
This is an important point. In high tax states like NY and CA, many taxpayers in a certain income range paying high RE tax and high state income tax have been frequently hit by AMT. For many under the new law, the negative impact of the loss of exemptions and $10K limit on SALT deduction will be more than offset by the benefits of the effective elimination of AMT and the lower tax rates.
This point doesn't get enough air time. There will be plenty of people happily surprised if they haven't run the scenarios already.

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Artsdoctor
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Re: CA property tax > $10K, any options to deduct all?

Post by Artsdoctor » Wed Oct 17, 2018 6:33 pm

London wrote:
Tue Oct 16, 2018 4:23 pm
MarkNYC wrote:
Tue Oct 16, 2018 3:47 pm
Artsdoctor wrote:
Tue Oct 16, 2018 3:24 pm

And remember that if you were in the AMT, we were not deducting real estate taxes anyway so you may not notice a big difference this year. Try running some projections with some of the online tax projection programs to see what you're in for.
This is an important point. In high tax states like NY and CA, many taxpayers in a certain income range paying high RE tax and high state income tax have been frequently hit by AMT. For many under the new law, the negative impact of the loss of exemptions and $10K limit on SALT deduction will be more than offset by the benefits of the effective elimination of AMT and the lower tax rates.
This point doesn't get enough air time. There will be plenty of people happily surprised if they haven't run the scenarios already.
I don't know about "happily surprised" but at least it's not as painful as originally thought. I've run some numbers for me and friends in similar situations, and the end result will be about the same in total tax. The marginal tax rate is actually higher so if there's increased income, the total will most likely increase accordingly. However, there doesn't really seem to be a gain or loss if things stay the same (and just take the standard deduction now at $24,000 for a couple).

krafty81
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Re: CA property tax > $10K, any options to deduct all?

Post by krafty81 » Wed Oct 17, 2018 6:38 pm

My taxes go down next year in CA.

dyangu
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Re: CA property tax > $10K, any options to deduct all?

Post by dyangu » Thu Oct 18, 2018 10:00 am

MarkNYC wrote:
Tue Oct 16, 2018 3:47 pm
Artsdoctor wrote:
Tue Oct 16, 2018 3:24 pm

And remember that if you were in the AMT, we were not deducting real estate taxes anyway so you may not notice a big difference this year. Try running some projections with some of the online tax projection programs to see what you're in for.
This is an important point. In high tax states like NY and CA, many taxpayers in a certain income range paying high RE tax and high state income tax have been frequently hit by AMT. For many under the new law, the negative impact of the loss of exemptions and $10K limit on SALT deduction will be more than offset by the benefits of the effective elimination of AMT and the lower tax rates.
The only reason I had AMT previously was due to high state income taxes, so I don’t know if not being able to deduct more than $10k really helps. The only thing that helps seem to be lower tax rates for married couples, which eliminated a lot of the marriage tax penalty.

To op, the only thing I can think of is to get divorced, so you and your spouse would get $10k each instead of $10k combined. This is the new marriage tax penalty.

hale2
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Re: CA property tax > $10K, any options to deduct all?

Post by hale2 » Thu Oct 18, 2018 10:34 am

krafty81 wrote:
Wed Oct 17, 2018 6:38 pm
My taxes go down next year in CA.
Same with me. AMT eliminated my state tax deductions so I wasn't getting to use them anyway. The lower federal tax rates and elimination of the marriage penalty and AMT (at least for me) is giving me a large tax break.

mervinj7
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Re: CA property tax > $10K, any options to deduct all?

Post by mervinj7 » Thu Oct 18, 2018 12:02 pm

hale2 wrote:
Thu Oct 18, 2018 10:34 am
krafty81 wrote:
Wed Oct 17, 2018 6:38 pm
My taxes go down next year in CA.
Same with me. AMT eliminated my state tax deductions so I wasn't getting to use them anyway. The lower federal tax rates and elimination of the marriage penalty and AMT (at least for me) is giving me a large tax break.
As other have pointed out, there is still a marriage penalty at the federal level. The $10k SALT limit applies whether you file as a single person or MFJ. I know one couple, both economists, who haven't gotten legally married for this reason. Their overall taxes should still be slightly lower due to the elimination of AMT for them.

libralibra
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Re: CA property tax > $10K, any options to deduct all?

Post by libralibra » Thu Oct 18, 2018 12:51 pm

mervinj7 wrote:
Thu Oct 18, 2018 12:02 pm
As other have pointed out, there is still a marriage penalty at the federal level. The $10k SALT limit applies whether you file as a single person or MFJ. I know one couple, both economists, who haven't gotten legally married for this reason. Their overall taxes should still be slightly lower due to the elimination of AMT for them.
It's interesting that someone would sell out the spiritual meaning of marriage for a few thousand in taxes. But even from a practical sense, I would think the cost and hassle of being unmarried wouldn't be worth it. E.g. unless they are very careful to split their expenses every year exactly, anything over 15k could constitute a gift to the other person. Are they filing gift tax forms for this? Also, the cost, or at least hassle, of maintaining all the legal documents for medical POA, wills, and custody of any minors would probably far exceed an extra 10k in SALT deductions.

inbox788
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Re: CA property tax > $10K, any options to deduct all?

Post by inbox788 » Thu Oct 18, 2018 1:03 pm

a010z wrote:
Tue Oct 16, 2018 2:58 pm
Hi All,
Are there any options if the property tax I have to pay this year is more than $10K?
I can only deduct up to $10K, but was wondering if there is any legal workaround to be able to deduct the entire property tax bill...
Is this your total bill? Can you defer part of the payment to next year? Doesn't help next year, but might in the last year you push it out to.

I usually pay the whole bill due in November and February all at once, but I'm wondering if there's any benefit to spending/wasting time and making 2 payments. For the foreseeable future, SALT will exceed $10k, and with few other deductions, I expect I'll take the standard deduction. The only conceivable situation is if I stopped working and paid little state income tax AND that extra deferred half payment only works to $10k SALT limit AND I made large donations, enough to itemize. But those two events seem to be on opposite sides and would be a once in a lifetime event. So for now, I plan to keep on doing what I've been doing for the time being.

mervinj7
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Re: CA property tax > $10K, any options to deduct all?

Post by mervinj7 » Thu Oct 18, 2018 2:28 pm

libralibra wrote:
Thu Oct 18, 2018 12:51 pm
mervinj7 wrote:
Thu Oct 18, 2018 12:02 pm
As other have pointed out, there is still a marriage penalty at the federal level. The $10k SALT limit applies whether you file as a single person or MFJ. I know one couple, both economists, who haven't gotten legally married for this reason. Their overall taxes should still be slightly lower due to the elimination of AMT for them.
It's interesting that someone would sell out the spiritual meaning of marriage for a few thousand in taxes. But even from a practical sense, I would think the cost and hassle of being unmarried wouldn't be worth it. E.g. unless they are very careful to split their expenses every year exactly, anything over 15k could constitute a gift to the other person. Are they filing gift tax forms for this? Also, the cost, or at least hassle, of maintaining all the legal documents for medical POA, wills, and custody of any minors would probably far exceed an extra 10k in SALT deductions.
I absolutely agree. However, my wife has informed me that I should NOT offer unsolicited marriage and/or tax advice to friends if I want to keep them as friends. :annoyed

hale2
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Re: CA property tax > $10K, any options to deduct all?

Post by hale2 » Thu Oct 18, 2018 7:48 pm

mervinj7 wrote:
Thu Oct 18, 2018 12:02 pm
hale2 wrote:
Thu Oct 18, 2018 10:34 am
krafty81 wrote:
Wed Oct 17, 2018 6:38 pm
My taxes go down next year in CA.
Same with me. AMT eliminated my state tax deductions so I wasn't getting to use them anyway. The lower federal tax rates and elimination of the marriage penalty and AMT (at least for me) is giving me a large tax break.
As other have pointed out, there is still a marriage penalty at the federal level. The $10k SALT limit applies whether you file as a single person or MFJ. I know one couple, both economists, who haven't gotten legally married for this reason. Their overall taxes should still be slightly lower due to the elimination of AMT for them.
Note the bold above. The lower brackets are double for married compared to single. And as I also noted, I was losing all of my income and property tax deductions to the AMT. Last I checked, getting a $10k deduction is better than Zero. And there are those that are better off with the $24k standard deduction, for whom SALT isn't a factor.

libralibra
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Re: CA property tax > $10K, any options to deduct all?

Post by libralibra » Thu Oct 18, 2018 8:08 pm

hale2 wrote:
Thu Oct 18, 2018 7:48 pm
Last I checked, getting a $10k deduction is better than Zero. And there are those that are better off with the $24k standard deduction, for whom SALT isn't a factor.
Yep, under AMT you got $0 SALT deduction, $0 property tax deduction, $0 standard deduction, and $0 personal exemption, so the change to AMT was a very big win. Anyone previously paying AMT in a high tax state who's complaining about the 10k SALT limit is trying to have it both ways, i.e. double dip, instead of just looking at the bottom line number for the overall benefit.

HornedToad
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Re: CA property tax > $10K, any options to deduct all?

Post by HornedToad » Thu Oct 18, 2018 8:13 pm

hale2 wrote:
Thu Oct 18, 2018 10:34 am
krafty81 wrote:
Wed Oct 17, 2018 6:38 pm
My taxes go down next year in CA.
Same with me. AMT eliminated my state tax deductions so I wasn't getting to use them anyway. The lower federal tax rates and elimination of the marriage penalty and AMT (at least for me) is giving me a large tax break.
Same. I lose about ~$25-30k in itemized deductions but save about $8k in total tax.

HEDGEFUNDIE
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Re: CA property tax > $10K, any options to deduct all?

Post by HEDGEFUNDIE » Fri Oct 19, 2018 6:02 am

libralibra wrote:
Thu Oct 18, 2018 12:51 pm
mervinj7 wrote:
Thu Oct 18, 2018 12:02 pm
As other have pointed out, there is still a marriage penalty at the federal level. The $10k SALT limit applies whether you file as a single person or MFJ. I know one couple, both economists, who haven't gotten legally married for this reason. Their overall taxes should still be slightly lower due to the elimination of AMT for them.
It's interesting that someone would sell out the spiritual meaning of marriage for a few thousand in taxes. But even from a practical sense, I would think the cost and hassle of being unmarried wouldn't be worth it. E.g. unless they are very careful to split their expenses every year exactly, anything over 15k could constitute a gift to the other person. Are they filing gift tax forms for this? Also, the cost, or at least hassle, of maintaining all the legal documents for medical POA, wills, and custody of any minors would probably far exceed an extra 10k in SALT deductions.
What exactly is “spiritual” about going to a county clerk’s office to get a government document??

mervinj7
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Re: CA property tax > $10K, any options to deduct all?

Post by mervinj7 » Fri Oct 19, 2018 11:48 am

hale2 wrote:
Thu Oct 18, 2018 7:48 pm
mervinj7 wrote:
Thu Oct 18, 2018 12:02 pm
As other have pointed out, there is still a marriage penalty at the federal level. The $10k SALT limit applies whether you file as a single person or MFJ. I know one couple, both economists, who haven't gotten legally married for this reason. Their overall taxes should still be slightly lower due to the elimination of AMT for them.
Note the bold above. The lower brackets are double for married compared to single. And as I also noted, I was losing all of my income and property tax deductions to the AMT. Last I checked, getting a $10k deduction is better than Zero. And there are those that are better off with the $24k standard deduction, for whom SALT isn't a factor.
Whether or not one's taxes are lower in 2018 compared to 2017 is a separate discussion. My only point is that there is a still a marriage penalty in effect for some folks. For example, dual-income homeowner households in high-tax states (e.g. like our own household along with half the folks that I work with).

If you want, you can try out the tax calculator below with an example for a young couple with careers in tech/academia and having a $750k mortgage in CA (25% down on a $1M townhouse @4.0% APR).

Income:
Your Income: $150k
Spouse Income: $150k
Children: 0
Itemized Deductions:
State and Local Tax: $16K ($10k CA, $12k/2 property tax)
Spouse State and Local Tax: $16k ($10k CA, $12k/2 property tax)
Mortgage Interest: $16k ($32k/2)
Spouse Mortgage Interest: $16k ($32k/2)

Tax as two individuals: $48,100
Tax as married couple: $50,500
Marriage Penalty: $2,400 or 24% of $10k

Source: https://www.taxact.com/tools/tax-bracket-calculator
CA Tax Source: https://smartasset.com/taxes/california-tax-calculator

By the way, the numbers above are based on a real family, a bit younger and a bit earlier in their careers than my own. In 3-4 years, when their RSUs fully vest, their marginal tax bracket will be pushed into 32% and their marriage penalty will increase to $3200/year.

Are our taxes lower in 2018 vs 2017? Yes, very likely so. :happy
Would our taxes be even lower if we were not married in 2018? Yes, for sure. :annoyed

Dottie57
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Re: CA property tax > $10K, any options to deduct all?

Post by Dottie57 » Fri Oct 19, 2018 12:20 pm

mervinj7 wrote:
Fri Oct 19, 2018 11:48 am

Income:
Your Income: $150k
Spouse Income: $150k
Children: 0
Itemized Deductions:
State and Local Tax: $16K ($10k CA, $12k/2 property tax)
Spouse State and Local Tax: $16k ($10k CA, $12k/2 property tax)
Mortgage Interest: $16k ($32k/2)
Spouse Mortgage Interest: $16k ($32k/2)

Tax as two individuals: $48,100
Tax as married couple: $50,500
Marriage Penalty: $2,400 or 24% of $10k
Ok difference in effective rates:

Two individuals 48100/300000 = 16.03333%
Married couple 50500/300000 = 16.83333%

Yes there is a difference, but not as bad as 24% calculated above looks.

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Clever_Username
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Re: CA property tax > $10K, any options to deduct all?

Post by Clever_Username » Fri Oct 19, 2018 12:24 pm

krafty81 wrote:
Wed Oct 17, 2018 6:38 pm
My taxes go down next year in CA.
How? I haven't figured out yet if mine will. What range will benefit?
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

mervinj7
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Re: CA property tax > $10K, any options to deduct all?

Post by mervinj7 » Fri Oct 19, 2018 12:51 pm

Dottie57 wrote:
Fri Oct 19, 2018 12:20 pm
Ok difference in effective rates:

Two individuals 48100/300000 = 16.03333%
Married couple 50500/300000 = 16.83333%

Yes there is a difference, but not as bad as 24% calculated above looks.
That 24% was just to show that the maximum potential marriage penalty can be quickly calculated by multiplying your marginal tax bracket (e.g. 24%) by the $10k SALT limit. In the above case, I was using it as a checksum between the two marital scenarios and to verify the tax calculator.
It's really not a big deal, all I was trying to do is clarify that there is still a marriage penalty in 2018. I wasn't expecting a whole side discussion about how bad or not it is. :oops:

As far as OP's original question is concerned, it's immaterial whether their overall taxes will go down in 2018 vs 2017 (almost every response has been regarding this and we should try to stay on topic).

Their specific question is whether under the current federal tax laws of 2018, they can legally deduct more than $10k of CA property tax. The answer is yes in at least two situations that I'm aware of:
1 ) Two unmarried co-owners of the property can both use the $10k SALT limit each instead of being limited to $10k per married couple.
2) If the property is partially rented out, that portion of the property tax is fully deductible against the rental income.

bling
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Re: CA property tax > $10K, any options to deduct all?

Post by bling » Fri Oct 19, 2018 4:59 pm

from what i recall when i first did the calculations months ago, pretty much everyone wins or breaks even, except for high earning singles in high tax states.

the biggest problem though is that all the W4 withholding numbers got screwed up as a result, so most people who itemize will end up owing taxes in april even though the total tax bill may be lower. i've had to adjust it twice already this year. it's currently at 0, and calculators are telling me i still owe, despite being married with kids.

Sandi_k
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Re: CA property tax > $10K, any options to deduct all?

Post by Sandi_k » Sat Oct 20, 2018 2:14 pm

bling wrote:
Fri Oct 19, 2018 4:59 pm
from what i recall when i first did the calculations months ago, pretty much everyone wins or breaks even, except for high earning singles in high tax states.
DINKs also lose in California. State tax, property tax, plus no deductions or tax credits with no kids....

hale2
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Re: CA property tax > $10K, any options to deduct all?

Post by hale2 » Sat Oct 20, 2018 11:04 pm

Sandi_k wrote:
Sat Oct 20, 2018 2:14 pm
bling wrote:
Fri Oct 19, 2018 4:59 pm
from what i recall when i first did the calculations months ago, pretty much everyone wins or breaks even, except for high earning singles in high tax states.
DINKs also lose in California. State tax, property tax, plus no deductions or tax credits with no kids....
Are you sure? I don't know what your numbers are so I ran tax caster for a couple making $200k, paying $20k state income tax and $10k property tax. It calculated 2017 federal taxes of $32,571. For 2018 the it calculated $30,819. And for $100k income, $10k state, and $10k property, it drops from $9856 in 2017 to $8742 in 2018.

I'm not saying you're wrong, just that you might want to run your numbers to verify.

SoAnyway
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Re: CA property tax > $10K, any options to deduct all?

Post by SoAnyway » Sat Oct 20, 2018 11:30 pm

a010z wrote:
Tue Oct 16, 2018 2:58 pm
Hi All,
Are there any options if the property tax I have to pay this year is more than $10K?
I can only deduct up to $10K, but was wondering if there is any legal workaround to be able to deduct the entire property tax bill...
No, assuming you're only talking about your federal return. SALT deduction's limited to 10k. BTW, the $10k is the cap not only on your property tax bill, but the SUM of your property tax bill PLUS your state/local income taxes (if any), car tax (if your state/municipality imposes one), and any other state and local taxes you pay.

Sorry your thread got hijacked, OP. If you provide more specifics re. your situation in a separate thread (e.g. state you're in, marginal tax rate, whether you're in AMT/NIIT or not, etc. ), you might get guidance better tailored to your specific situation.

EDIT: Sorry - I see in your thread title that you're in CA - both high property tax AND high income tax. Run the calculations in the tools others have suggested and/or post more specifics re. tax bracket/situation that will allow others here to help you.

BusterMcTaco
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Re: CA property tax > $10K, any options to deduct all?

Post by BusterMcTaco » Sun Oct 21, 2018 3:35 am

Everyone saying that those who hit AMT didn't have a SALT deduction at all simply don't understand AMT.

If you had a $50,000 SALT deduction that's probably WHY you hit AMT. You don't suddenly get none of it. It's where the two lines of the two tax systems intersected.

Don't believe me? If you had high state taxes but paid AMT, go redo your 2017 taxes and change your SALT deduction to $10000. See what happens. You will no longer have an AMT tax, but your normal tax will go way up!

THY4373
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Re: CA property tax > $10K, any options to deduct all?

Post by THY4373 » Sun Oct 21, 2018 9:42 am

HEDGEFUNDIE wrote:
Fri Oct 19, 2018 6:02 am
What exactly is “spiritual” about going to a county clerk’s office to get a government document??
+1 You have have the legal without the "spiritual" bits and the "spiritual" without the legal bits.

Vernn
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Re: CA property tax > $10K, any options to deduct all?

Post by Vernn » Sun Oct 21, 2018 9:56 am

Sandi_k wrote:
Sat Oct 20, 2018 2:14 pm
bling wrote:
Fri Oct 19, 2018 4:59 pm
from what i recall when i first did the calculations months ago, pretty much everyone wins or breaks even, except for high earning singles in high tax states.
DINKs also lose in California. State tax, property tax, plus no deductions or tax credits with no kids....
+1 and I ran the numbers

Sandi_k
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Re: CA property tax > $10K, any options to deduct all?

Post by Sandi_k » Sun Oct 21, 2018 11:09 am

hale2 wrote:
Sat Oct 20, 2018 11:04 pm
Sandi_k wrote:
Sat Oct 20, 2018 2:14 pm
bling wrote:
Fri Oct 19, 2018 4:59 pm
from what i recall when i first did the calculations months ago, pretty much everyone wins or breaks even, except for high earning singles in high tax states.
DINKs also lose in California. State tax, property tax, plus no deductions or tax credits with no kids....
Are you sure? I don't know what your numbers are so I ran tax caster for a couple making $200k, paying $20k state income tax and $10k property tax. It calculated 2017 federal taxes of $32,571. For 2018 the it calculated $30,819. And for $100k income, $10k state, and $10k property, it drops from $9856 in 2017 to $8742 in 2018.

I'm not saying you're wrong, just that you might want to run your numbers to verify.
I have.

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mrspock
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Re: CA property tax > $10K, any options to deduct all?

Post by mrspock » Sun Oct 21, 2018 11:42 am

THY4373 wrote:
Sun Oct 21, 2018 9:42 am
HEDGEFUNDIE wrote:
Fri Oct 19, 2018 6:02 am
What exactly is “spiritual” about going to a county clerk’s office to get a government document??
+1 You have have the legal without the "spiritual" bits and the "spiritual" without the legal bits.
+1 ... this is becoming more common now as well mellenials just aren’t buying the marriage thing (count me among them), and those that do marry far later and divorcing far less than the parents (who are still divorcing at high rates into their 50s and 60s).

Source: https://www.bloomberg.com/news/articles ... to-plummet

TBillT
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Re: CA property tax > $10K, any options to deduct all?

Post by TBillT » Tue Oct 23, 2018 10:32 am

One way to increase SALT deduction in some states (eg; Va others) is a special donation program called NAP Neighborhood Assistance Program (in Virginia). We get 65% state tax credit for that, so you can reduce the state tax portion. With the new IRS rule, you can only deduct from Fed taxes the balance (35%) that was not reimbursed. Prior to that ruling, you could "double dip" and deduct the full amount and actually make money for the "donation" depending on your tax bracket. Still if you have appreicated stocks to donate, could be attractive idea. I am running the numbers, and also because it seems Va. may change taxes to be more consistent with the new Fed rules, unlcear if it makes sense for me this year.

BusterMcTaco
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Re: CA property tax > $10K, any options to deduct all?

Post by BusterMcTaco » Tue Oct 23, 2018 10:49 am

How is that better than just making a donation equivalent to the 35% to whatever charity you'd prefer?

Scenario 1:
Owe $20,000 in income tax.
Donate $15,500.
Get $10,075 credit.

State income tax paid: $9,925
Donation made: $15,500
Federal charitable deduction: $5,425
SALT: $9,925
Total paid: $25,425. Total deducted: $15,350.

Scenario 2:
Owe $20,000 in income tax.
Donate $5,425 to charity of your choice.

State income tax paid: $20,000
Donation made: $5,425
Federal charitable deduction: $5,425
SALT: $10,000
Total paid: $25,425. Total deducted: $15,425.

In Scenario 2, you pay the same, get a larger deduction, and got to pick where your charitable money went. In fact, I think the difference in deduction is equal to how much you went below $10,000 on your SALT. If you didn't go below $10,000 they would be equal. I haven't proven this algebraically yet ;)

mervinj7
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Re: CA property tax > $10K, any options to deduct all?

Post by mervinj7 » Tue Oct 23, 2018 11:01 am

hale2 wrote:
Sat Oct 20, 2018 11:04 pm
Are you sure? I don't know what your numbers are so I ran tax caster for a couple making $200k, paying $20k state income tax and $10k property tax. It calculated 2017 federal taxes of $32,571. For 2018 the it calculated $30,819. And for $100k income, $10k state, and $10k property, it drops from $9856 in 2017 to $8742 in 2018.

I'm not saying you're wrong, just that you might want to run your numbers to verify.
A couple making $200k will pay $12.6k in CA state taxes ($20k is too high with current tax brackets). If they own a $1M house, they will have roughly $32k/year in interest payments ($750k mortgage at 4.25% last year) and $12k/year in property tax. Try running the numbers again in taxcaster. To make things more interesting, recalculate their taxes by splitting them up (two single individuals who co-own the property) to see the effects of the marriage penalty (if any).

TBillT
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Re: CA property tax > $10K, any options to deduct all?

Post by TBillT » Tue Oct 23, 2018 11:19 am

BusterMcTaco wrote:
Tue Oct 23, 2018 10:49 am
How is that better than just making a donation equivalent to the 35% to whatever charity you'd prefer?

In Scenario 2, you pay the same, get a larger deduction, and got to pick where your charitable money went. In fact, I think the difference in deduction is equal to how much you went below $10,000 on your SALT. If you didn't go below $10,000 they would be equal. I haven't proven this algebraically yet ;)
Well maybe the new IRS tax rule makes it less advantageous now, as I say I trying to understand the new math reality myself.
But in Virginia we now have to look at the combined Federal/State taxes, because itemized deductions reduce state taxes a lot, so more of us have to itemize even though we take a loss on the Federal taxes (when Standard Deduction is greater). For those of us over 65 the Fed Standard Deduction is $26,600.

By the way, most states that have the program, the state credit is 50%.

desi_kalle
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Re: CA property tax > $10K, any options to deduct all?

Post by desi_kalle » Tue Oct 23, 2018 1:02 pm

mervinj7 wrote:
Fri Oct 19, 2018 11:48 am
Itemized Deductions:
State and Local Tax: $16K ($10k CA, $12k/2 property tax)
Spouse State and Local Tax: $16k ($10k CA, $12k/2 property tax)
This should be $10k total for both property tax and state income tax.

mervinj7
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Re: CA property tax > $10K, any options to deduct all?

Post by mervinj7 » Tue Oct 23, 2018 1:24 pm

desi_kalle wrote:
Tue Oct 23, 2018 1:02 pm
mervinj7 wrote:
Fri Oct 19, 2018 11:48 am
Itemized Deductions:
State and Local Tax: $16K ($10k CA, $12k/2 property tax)
Spouse State and Local Tax: $16k ($10k CA, $12k/2 property tax)
This should be $10k total for both property tax and state income tax.
Yep, SALT gets limited to $10k total for a married couple. The tax calculator does that part for you. An unmarried couple gets $10k each. That's the marriage penalty for some.

mariezzz
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Re: CA property tax > $10K, any options to deduct all?

Post by mariezzz » Tue Oct 23, 2018 6:30 pm

mrspock wrote:
Sun Oct 21, 2018 11:42 am
THY4373 wrote:
Sun Oct 21, 2018 9:42 am
HEDGEFUNDIE wrote:
Fri Oct 19, 2018 6:02 am
What exactly is “spiritual” about going to a county clerk’s office to get a government document??
+1 You have have the legal without the "spiritual" bits and the "spiritual" without the legal bits.
+1 ... this is becoming more common now as well mellenials just aren’t buying the marriage thing (count me among them), and those that do marry far later and divorcing far less than the parents (who are still divorcing at high rates into their 50s and 60s).

Source: https://www.bloomberg.com/news/articles ... to-plummet
I always thought that people who stayed together without marriage had a much stronger bond on average than married people. It's much easier to walk away from a relationship if you don't have the legal dressing on it. Yet I know people who have been together over 30 years, and raised children, without the trappings of marriage. They should think about the benefits of marriage for social security as they approach social security age, however. In this case, the male would be the one to benefit.

The assumption that one cannot have some unspecified spiritual benefit if not married is wrong.
It's also wrong to assume that all who are married actually have such spiritual benefit.
Finally, it's wrong to assume that everyone wants a 'spiritual' benefit (not to mention, the meaning of 'spiritual' is pretty undefined).

There certainly can be financial benefits of not being married, especially under the new tax laws, but in other areas as well.

As for the millenial divorce rate: only time will tell. Since they're marrying later, the divorce rate may reflect that, rather than their long-term trend to stay married.

It's important to note this from the Bloomberg link
“One of the reasons for the decline is that the married population is getting older and more highly educated,” ... Many poorer and less educated Americans are opting not to get married at all. They’re living together, and often raising kids together, but deciding not to tie the knot. And studies have shown these cohabiting relationships are less stable than they used to be.

libralibra
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Re: CA property tax > $10K, any options to deduct all?

Post by libralibra » Tue Oct 23, 2018 6:46 pm

BusterMcTaco wrote:
Tue Oct 23, 2018 10:49 am
How is that better than just making a donation equivalent to the 35% to whatever charity you'd prefer?
From your example it looks like the benefit is that 3x the amount goes to the charity for the same cost to the taxpayer (assuming he is ok with that charity).

btw, it was the same before tax reform. Using your example's numbers the deduction used to be 25k, but still the same in both scenarios, while the charity gets more money. (I don't think the taxpayer can actually "make money" as the other post stated, though.)

desi_kalle
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Re: CA property tax > $10K, any options to deduct all?

Post by desi_kalle » Tue Oct 23, 2018 7:09 pm

mervinj7 wrote:
Tue Oct 23, 2018 1:24 pm
desi_kalle wrote:
Tue Oct 23, 2018 1:02 pm
mervinj7 wrote:
Fri Oct 19, 2018 11:48 am
Itemized Deductions:
State and Local Tax: $16K ($10k CA, $12k/2 property tax)
Spouse State and Local Tax: $16k ($10k CA, $12k/2 property tax)
This should be $10k total for both property tax and state income tax.
Yep, SALT gets limited to $10k total for a married couple. The tax calculator does that part for you. An unmarried couple gets $10k each. That's the marriage penalty for some.
In the 2 single situation, the best tax strategy would be to have 1 person take the full interest deduction and the other person take the standard 12k deduction. Both individuals would be capped out on the 10k SALT just from their individual CA income tax.

Big Dog
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Re: CA property tax > $10K, any options to deduct all?

Post by Big Dog » Tue Oct 23, 2018 7:14 pm

If they own a $1M house, they will have roughly $32k/year in interest payments ($750k mortgage at 4.25% last year) and $12k/year in property tax.
Only if they purchased last year. But if they purchased say, 5 years ago, Prop 13 taxes could be a whole lot less. Prop 13 is insidious in that it penalizes new comers and new purchasers. However, a long-term DINK homeowner could have a $1M home value with property taxes under $5k.

BusterMcTaco
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Re: CA property tax > $10K, any options to deduct all?

Post by BusterMcTaco » Wed Oct 24, 2018 12:46 am

libralibra wrote:
Tue Oct 23, 2018 6:46 pm
BusterMcTaco wrote:
Tue Oct 23, 2018 10:49 am
How is that better than just making a donation equivalent to the 35% to whatever charity you'd prefer?
From your example it looks like the benefit is that 3x the amount goes to the charity for the same cost to the taxpayer (assuming he is ok with that charity)
If you consider that state fund a charity, then sure... I guess.

mervinj7
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Re: CA property tax > $10K, any options to deduct all?

Post by mervinj7 » Wed Oct 24, 2018 12:02 pm

Big Dog wrote:
Tue Oct 23, 2018 7:14 pm
If they own a $1M house, they will have roughly $32k/year in interest payments ($750k mortgage at 4.25% last year) and $12k/year in property tax.
Only if they purchased last year. But if they purchased say, 5 years ago, Prop 13 taxes could be a whole lot less. Prop 13 is insidious in that it penalizes new comers and new purchasers. However, a long-term DINK homeowner could have a $1M home value with property taxes under $5k.
This particular home is worth $1.4M now (they paid a bit less than $1M back in 2014). If it were purchased today, current property taxes would be ~$17,600 instead of $12,600.

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Re: CA property tax > $10K, any options to deduct all?

Post by mervinj7 » Wed Oct 24, 2018 12:18 pm

desi_kalle wrote:
Tue Oct 23, 2018 7:09 pm
In the 2 single situation, the best tax strategy would be to have 1 person take the full interest deduction and the other person take the standard 12k deduction. Both individuals would be capped out on the 10k SALT just from their individual CA income tax.
I'm not entirely certain of all the financial details of this couple but I do know both names are on the mortgage and both names are on the deed. In which case, I'm not sure if the IRS would allow one person to take the full interest deduction if both individuals paid equal amounts of the mortgage. If that were feasible, then that would exacerbate the marriage penalty issue even further.

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Artsdoctor
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Re: CA property tax > $10K, any options to deduct all?

Post by Artsdoctor » Wed Oct 24, 2018 1:22 pm

BusterMcTaco wrote:
Sun Oct 21, 2018 3:35 am
Everyone saying that those who hit AMT didn't have a SALT deduction at all simply don't understand AMT.

If you had a $50,000 SALT deduction that's probably WHY you hit AMT. You don't suddenly get none of it. It's where the two lines of the two tax systems intersected.

Don't believe me? If you had high state taxes but paid AMT, go redo your 2017 taxes and change your SALT deduction to $10000. See what happens. You will no longer have an AMT tax, but your normal tax will go way up!
Once you're in the AMT, you're in a new tax system with its own rules. You're not running parallel. While you're subject to the AMT calculations, you'll be susceptible to its own phase-outs and idiosyncrasies and your marginal rate will usually be lower than without the AMT (although even that was variable).

I found the AMT impossible to predict (I was always hitting the 28-35% marginal rate but without predictability) and I'll be happy to see it go (for the vast majority of people).

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Re: CA property tax > $10K, any options to deduct all?

Post by dandinsac » Wed Oct 24, 2018 4:28 pm

Thanks for starting the thread as it resulted in my figuring out exactly what I would pay. It doesn’t help getting more property tax writeoffs, but it does illustrate that the tax law is fairly neutral for some of us in California.

Here’s how it plays out for me as a California resident...

2016 - AGI - $162,700; itemized deductions of $33,200 (CA income tax $11,000; Real Estate $5,700; mortgage $14,300: charity $2,100) Subtracting $8,100 for exemptions results in an income tax of $21,800

For 2017, AGI was $159,800, however I prepaid ~$3,000 of property taxes and $1,000 of mortgage interest. This allowed me to have an itemized deductions of $36,400, so my taxes were “only” $19,300.

2018 projections - AGI $160,400; standard deduction of $24,000. My SALT will be about $13,000, but with less mortgage interest, I will be under $24K.) This results in a tax of $21,900.

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Re: CA property tax > $10K, any options to deduct all?

Post by BusterMcTaco » Wed Oct 24, 2018 5:32 pm

Artsdoctor wrote:
Wed Oct 24, 2018 1:22 pm
BusterMcTaco wrote:
Sun Oct 21, 2018 3:35 am
Everyone saying that those who hit AMT didn't have a SALT deduction at all simply don't understand AMT.

If you had a $50,000 SALT deduction that's probably WHY you hit AMT. You don't suddenly get none of it. It's where the two lines of the two tax systems intersected.

Don't believe me? If you had high state taxes but paid AMT, go redo your 2017 taxes and change your SALT deduction to $10000. See what happens. You will no longer have an AMT tax, but your normal tax will go way up!
Once you're in the AMT, you're in a new tax system with its own rules. You're not running parallel. While you're subject to the AMT calculations, you'll be susceptible to its own phase-outs and idiosyncrasies and your marginal rate will usually be lower than without the AMT (although even that was variable).

I found the AMT impossible to predict (I was always hitting the 28-35% marginal rate but without predictability) and I'll be happy to see it go (for the vast majority of people).
AMT isn't a prediction. It is math. I'm not sure if you are agreeing with me or not, but no one flipped a switch for you to only be "in the AMT". You still calculate both forms of taxes because at one point the normal tax becomes higher again. Regardless, at any given point, if you were/are subject to AMT, it is because of your deductions. Lose those deductions and your standard tax becomes higher than AMT, and you owe more.

Again, don't believe me, go change your SALT deduction for your 2017 taxes and see what happens (if you paid AMT).

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Artsdoctor
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Re: CA property tax > $10K, any options to deduct all?

Post by Artsdoctor » Wed Oct 24, 2018 5:56 pm

I'm not really sure we have much of an argument here. If you were subject to the AMT in the past, you will probably not notice an appreciable change in your total tax with the new tax law although everyone's situation will be different to some degree.

The prediction dilemma I was referring to center around the phase-outs in the AMT. The margin was incredibly thin between the standard 28% marginal rate and the maximal phase out rate of 35%. Consequently, trying to figure out whether or not to do a Roth conversion, for example, was frustrating; I might be willing to pay a 28% marginal rate but not a 35% marginal rate. But it's no longer applicable since most will not be subject to the AMT, evidently.

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