Miami-Dade County has been spared the long lines that have formed in tax collection offices across the nation before the arrival of President Donald Trump’s new tax law on Jan. 1. But the new law has still caused considerable confusion and consternation for local property owners.
“This is the weirdest time for tax planning we have ever seen,” said Meredith Tucker, a certified public accountant and senior manager in the entrepreneurial services practice at Kaufman Rossin in Fort Lauderdale. “The phone has rung off the hook day and night.”
The bottom line for Floridians: While 2017 property taxes aren’t due until March 31, 2018, Florida property owners with hefty bills should pay them before the year ends if they can.
Those who wait until 2018 to pay will be subject to the new $10,000 cap on deductions for state and local taxes that is part of the recently enacted federal tax bill, Tucker said. That means that if you typically pay more than $10,000 in property taxes a year, you’ll only be able to deduct $10,000 on your tax return.
Paying early does have other advantages too: In Miami-Dade, taxpayers get a 3 percent deduction if they pay their property taxes in December, 2 percent if paid in January and 1 percent if paid in February.
As for those 2018 taxes, Floridians are out of luck.
Unlike taxpayers in some other states, Floridians are not allowed to pre-pay 2018 taxes. That’s because Florida statutes bar prepayments more than a year in advance, said Michael Hernández, spokesman for Miami-Dade Mayor Carlos Gimenez.
The new federal tax law, passed Dec. 20, constitutes the most far-reaching overhaul of the tax code in 30 years. It was also passed in record time, angering critics who said Republicans acted too quickly. But proponents of the law, and the controversial $10,000 cap, say the cap was necessary to offset cuts on personal and corporate income tax rates.
The cap disproportionally affects states with high taxes and high property values. Florida falls in the mid range in terms of its property tax rate, with a rate of 1.06 percent in 2017, according to WalletHub. In New Jersey, Texas and New York, the tax rate is much higher, ranging from 2.35 percent to 1.62 percent.
The cap on deductions could also have a significant impact in Miami-Dade County, where the median home value has increased by 6.1 percent in the past year, as of Nov. 30, according to Zillow.
While the deduction cap may not affect most taxpayers with lower incomes, it could constitute a major hit for those with higher earnings. For example, Florida taxpayers with incomes above $200,000 had an average property tax deduction of about $13,000 in 2015, according to the Tax Policy Center.
Steven Kline, corporate managing partner at South Florida accounting firm Gerson Preston Kline Lips Eisenberg Gelber, said he expects taxpayers with homes valued at more than $500,000, that have been transacted recently, will pay property taxes in excess of $10,000.
“There will be a lot of properties over $10,000,” Kline said. “Miami is now one of the major cities so there are a lot of people that will be affected by [the cap].”
And, even if your property tax is less than $10,000, the cap also takes sales tax into account, Tucker said. So if you have large purchases in a single year, like furniture or a car, you may find yourself over the $10,000 deduction limit.
Though only about 30 people were gathered at the tax collector’s office in Miami on Thursday morning, “many” people have visited in person or called inquiring about what to do, Hernández said.
“There is a great deal of confusion,” Hernández said.
Since the lines started forming, the Internal Revenue Service has attempted to clarify the situation.
On Wednesday, the IRS issued a statement saying that taxpayers could only avoid the cap if their prepayments were for property taxes assessed in 2017. That essentially nullified attempts to avoid the cap in 2018 because many local governments have not yet assessed taxes for that year.
Tucker said the new tax law, while beneficial for some, will create a period of adjustment for others.
“I think we are going to go through a period where people are going to try to throw things at the wall and see what sticks,” Tucker said.
Meredith Tucker, CPA, is an entrepreneurial services manager and a QuickBooks ProAdvisor in Kaufman Rossin’s Ft. Lauderdale office. Kaufman Rossin is one of the top CPA and advisory firms in the U.S. Meredith can be reached at email@example.com.