Paying property taxes before or after December 31, 2021 could reduce your income taxes by thousands of dollars. It depends on Congress and the itemized deduction for state and local taxes (SALT).
Taxpayers benefit from the higher of the standard deduction or itemized deduction, whichever provides the larger tax benefit when they file their income tax return. For 2021, the standard deduction is $12,550 single or $25,100 married filing joint.
Four of the more common itemized deductions on the federal Schedule A are:
- Medical and dental expenses
- Wisconsin income taxes plus property taxes, i.e. SALT
- Mortgage interest
- Charitable gifts
Historically, SALT has been capped at a maximum of $10,000 for both single and joint tax filers. Because of the cap, most taxpayers don’t have enough deductions, so they simply claim the standard deduction. However, that may be changing.
The House of Representatives recently passed a bill raising the cap on SALT to $80,000, and it’s retroactive for 2021. The bill is now being debated by the Senate and some key Senators are opposed to this increase. It’s noteworthy that a prior version of this bill raised the cap on SALT starting in 2022.
What to do? For many, paying your property taxes in the year the SALT cap is increased will be beneficial. For instance, many physicians hit the $10,000 SALT cap with just their Wisconsin income taxes. So, paying property taxes doesn’t increase the deduction. However, let’s assume the cap is increased in 2022. By paying property taxes after January 1, 2022, itemized deductions would be increased by the property tax payment. For someone in the 35% tax bracket and $10,000 of property taxes, that’s $3,500 in tax savings!
Keep an eye out for SALT changes from Washington and work with your tax advisor on this and other strategies that may apply to you. If you don’t have an advisor, feel free to contact Mark Ziety, CFP®, AIF® 608.442.3750.
And don’t forget about the Retirement Success Workshop this month! Click here to register.
For personalized help eliminating debt, investing smart and securing retirement, please contact Mark Ziety, CFP®, AIF® 608.442.3750.
Mark Ziety, CFP®, AIF®
WisMed Financial, Inc. part of the Wisconsin Medical Society.
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