Has anyone done this? Is it a good idea? Pay 11% penalty to save 26% AMT (of course, assumes you won't be in AMT again next year). Are there other repercussions besides the penalty for missing a property tax payment by a month or two?
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libralibra said:Has anyone done this? Is it a good idea? Pay 11% penalty to save 26% AMT (of course, assumes you won't be in AMT again next year). Are there other repercussions besides the penalty for missing a property tax payment by a month or two?Are you sure it 11% for being late or 11% APY for being late. Which means it should be more like 1%/month for being late.
libralibra said:Has anyone done this? Is it a good idea? Pay 11% penalty to save 26% AMT (of course, assumes you won't be in AMT again next year). Are there other repercussions besides the penalty for missing a property tax payment by a month or two?The saving isn't 26%. You only save the difference between your AMT marginal tax rate and regular tax marginal tax rate.
To most people tax is highly counter intuitive and totally non-linear. The best bet is do the 2 scenarios in Turbo Tax and compare the result.
Keep in mind, even if you avoid AMT this year, next year you will have twice of the amounts of non-AMT deductible property taxes.
- yep 11% flat. After a year or something then they start tacking on another 1%/month or so - it is 26% if you are already gonna be in AMT no matter what. Each extra dollar then gets taxed at 26%. Just trying to minimize the AMT this year by deferring. - paying and not claiming as a deduction is effectively what AMT is doing. By paying late, I would push into the next year, where I hope that I could take the deduction and save some money.
libralibra said: - it is 26% if you are already gonna be in AMT no matter what. Each extra dollar then gets taxed at 26%. Just trying to minimize the AMT this year by deferring.I wish it were that simple.
libralibra said:- yep 11% flat. After a year or something then they start tacking on another 1%/month or so - it is 26% if you are already gonna be in AMT no matter what. Each extra dollar then gets taxed at 26%. Just trying to minimize the AMT this year by deferring. - paying and not claiming as a deduction is effectively what AMT is doing. By paying late, I would push into the next year, where I hope that I could take the deduction and save some money.So you want to pay 11% now in the hopes that you will be able to save (your marginal tax rate - 11%) next year?
Unless you have specific reasons to expect your income will not be subject to AMT next year (other than general optimism), you'd be better off paying the taxes on time, and using that extra 11% to buy lottery tickets....
The 26% AMT rate has no relevance at all -- right? If you will definitely pay AMT this year, then paying the property tax this year has no effect on this year's federal tax; it saves you whatever the deduction will be next year (if you're not paying AMT then).
nycll said:libralibra said: - it is 26% if you are already gonna be in AMT no matter what. Each extra dollar then gets taxed at 26%. Just trying to minimize the AMT this year by deferring.I wish it were that simple.
heh, I work with a guy just like you. He always says stuff very mysteriously like he knows better, but never fully says what he's thinking so you can't tell if he's right and you should listen to him, or just blow him off as noise (usually turns out to be the latter, though).
LH2004 said:The 26% AMT rate has no relevance at all -- right? If you will definitely pay AMT this year, then paying the property tax this year has no effect on this year's federal tax; it saves you whatever the deduction will be next year (if you're not paying AMT then).
Yes, this is essentially the question I'm asking. If I expect to not be in AMT next year, and I hold off paying till Jan 1, then I can claim the deduction next year and save my marginal rate (which I guess could be higher than 26%, so my OP was slightly off). If I pay this year, I don't have a penalty, but no deduction either. That would be a few hundred dollars difference.
Glitch seems to have understood my question as well, and is saying that if there's even a chance of getting in AMT next year (rendering the deduction useless also), then I should just avoid the gamble and pay now and save myself the penalty.
I guess my secondary question was, is there any downside to paying property taxes late (besides the penalty)? Credit score issues? Refi issues many years later? Or nothing as long as you pay soon afterwards?
When is your bill due? In Texas, our local property tax bills are due on January 31st and mailed in Novemeber. So we get to decide what year to pay it in. I paid last year's property tax in January, and will pay this years in December. Since Texas doesn't have any income tax, I tend to itemize every other year with big deductions one year and taking the standard the next.
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