With a little more than two months left to year end, it’s time to talk to your clients about how their tax picture will look different very soon. What can they do to improve the situation?
You know the positives. They probably do too. There are plenty of articles telling the story, but overall your clients are probably most interested in what might end up costing them more next tax season. Two big areas are:
1. Mortgage Interest Deduction Reduction
They were able to deduct interest on $1,000,000 worth of mortgages. Now it’s $750,000. This might get them worried.
Strategy 1: Explain the problem isn’t as big as they think. Mortgages in place before December 15th, 2017 are grandfathered under the old rules. The new rule applies to new mortgages.
Strategy 2: Did they take out a mortgage after December 15th? Does it make sense to pay off one of their mortgages? The rate they are paying in interest is likely higher than the low interest rate their cash is earning.
2. State and Local Taxes
It’s a big one. Their deduction for state and local taxes paid will be capped at $10,000. If they live in a state like New Jersey with high property taxes, this is going to cost them. This problem is even bigger if they live in an area like Long Island or Westchester County in New York, where you have high state income taxes in addition to property taxes.
Strategy: There’s not much you can do. They might have tried accelerating payments to fit them into 2017. They can’t really delay payments until 2019 because they would get a hefty late payment penalty. They’ll have to live with this one.