Is it really a good idea to pay your property taxes and your Jan 1 mortgage interest payments in 2007 vs 2008?

Question

I mean, if you claim it this year, that means you can't claim it next year, so why would it matter? Is it smartest to claim 2 years mortgage interest and property taxes in 1 year (1 payment January and one in December?) I've just been claiming one per year and not accelerating any payments ever.

Answer 1

In many state, property taxes are paid in arrears by one year. This means that the taxes you paid in 2007 were actually for 2006. However, in that situation, you can also pay your 2007 before year end to be able to deduct them in 2007 instead of 2008 when they are usually due.

For taxpayers who exceed their standard deduction anyway, it makes no difference for the most part if you pay the taxes in 2007 or 2008. However, for many people, including retirees, there are not enough deductions to exceed their standard deduction. So, having the option of deducting two years' of property taxes every other year, gives them higher deductions in those years. They get the standard deduction in the off years, which they would anyway. But the double years allows them to get more deduction than usual for expenses that would otherwise be lost.

Hope that clears that up. Have a great New Year.

Answer 2

I don't have a mortgage. My property taxes, sales tax and charity contributions average $6000 a year. I'm single and get a $5350 standard deduction by breathing. I hover at the 15/25% tax bracket switch and I haven't been near AMT in years.

I could itemize every year and over 2 years take $12,000 in deductions.

Or I could postpone the $5000 in property taxes until next Friday (which is exactly what I'm doing) and take a double hit of property taxes next year. $5350 in year one + $11,000 in year two = $16350. I get an extra $4350 in deductions. At 15%, I've saved an extra $650. At 25%, I've saved $1100.

I itemize every other year. Yes, I do slightly larger charity checks in the even numbered year (same number of charities) and I managed to time a car purchase to a year I would deduct sales tax.

Answer 3

Many people who are very close to the line for itemizing do this, itemizing in the year when they pay 13 mortgage payments and two years real estate taxes, and taking the standard deduction in the alternate years.

Answer 4

It depends on your personal situation. If you expect to be in a higher tax bracket in 2007 than in 2008, it may make sense to get more deductions in 2007. If you expect to be in a higher tax bracket in 2008, then it may be more valuable to have extra deductions in 2008. You need to estimate your income and deductions for both years to see if it makes any sense.