Warning!!! Pre-paid State and Local Taxes are NOT DEDUCTIBLE in 2017 If they are due in 2018!

By Sanford Millar of MillarLaw A Professional Corporation On Sunday, December 17, 2017


Assuming that the Tax Cuts and Jobs Act (“TCJA”) passes both Houses of Congress and is signed by the president, there will be monumental changes in the Internal Revenue Code on the individual and corporate tax levels.

One example is the limitation on the part of individuals to deduct state and local taxes (“SALT”). Prior to the TCJA an individual (including joint return filers) who itemized could deduct state and local taxes to the extent they exceeded to two percent (2%) of Adjusted Gross Income (“AGI”). Under the TCJA an individual is limited to a combined deduction of $5,000 ($10,000 per couple).

Tax advisers have been suggesting that individual taxpayers pre-pay their SALT liabilities for 2018 to overcome the limitation. However, the there is language in the TCJA anticipates and neutralizes that suggestion,

“…an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future taxable year in order to avoid the dollar limitation applicable for taxable years beginning after 2017.” (TCJA, p 558)

Therefore, if you may want to reconsider the suggestion to pre-pay your 2018 SALT liabilities.
Planning note: the TCJA is extremely complex and it requires a lot of careful analysis before meaningful planning steps can be recommended. Please have patience with us and other professionals as we all struggle through the legislation and work toward viable solutions.

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