We wanted to inform you about new limit placed on individuals' itemized deductions of various kinds of nonbusiness taxes, which was made by the massive Tax Cuts and Jobs Act (TCJA), effective beginning with the 2018 tax year.
Before the changes were effective, individuals were permitted to claim the following types of taxes as itemized deductions, even if they were not business related:
Taxpayers could elect to deduct state and local general sales taxes in lieu of the itemized deduction for state and local income taxes.
Tax deduction cuts. For tax years 2018 through 2025, TCJA limits deductions for taxes paid by individual taxpayers in the following ways:
To prevent avoidance of the $10,000 deduction limit by prepayment in 2017 of future taxes, the TCJA treats any amount paid in 2017 for a state or local income tax imposed for a tax year beginning in 2018 as paid on the last day of the 2018 tax year. So an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future tax year in order to avoid the $10,000 aggregate limitation. But it may be prudent to get the next quarter real estate taxes paid in 2017.
I hope this information helps you understand these changes. Please call me if you wish to discuss how they or any of the many other changes in the TCJA could affect your particular tax situation, and the planning steps you might consider in response to them.