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Why you may want to accelerate your property tax payment into 2017

Accelerating deductible expenses, such as property tax on your home, into the current year typically is a good idea. Why? It will defer tax, which usually is beneficial. Prepaying property tax may be especially beneficial this year, because proposed tax legislation might reduce or eliminate the benefit of the property tax deduction beginning in 2018.

Proposed changes

The initial version of the House tax bill would cap the property tax deduction for individuals at $10,000. The initial version of the Senate tax bill would eliminate the property tax deduction for individuals altogether.

In addition, tax rates under both bills would go down for many taxpayers, making deductions less valuable. And because the standard deduction would increase significantly under both bills, some taxpayers might no longer benefit from itemizing deductions.

2017 year-end planning

You can prepay (by December 31) property taxes that relate to 2017 but that are due in 2018 and deduct the payment on your 2017 return. But you generally can’t prepay property tax that relates to 2018 and deduct the payment on your 2017 return.

Prepaying property tax will in most cases be beneficial if the property tax deduction is eliminated beginning in 2018. But even if the property tax deduction is retained, prepaying could still be beneficial. Here’s why:

  • If your property tax bill is very large, prepaying is likely a good idea in case the property tax deduction is capped beginning in 2018.
  • If you could be subject to a lower tax rate in 2018 or won’t have enough itemized deductions overall in 2018 to exceed a higher standard deduction, prepaying is also likely tax-smart because a property tax deduction next year would have less or no benefit.

However, there are a few caveats:

  • If you’re subject to the AMT in 2017, you won’t get any benefit from prepaying your property tax. And if the property tax deduction is retained for 2018, the prepayment could cost you a tax-saving opportunity next year.
  • If your income is high enough that the income-based itemized deduction reduction applies to you, the tax benefit of a prepayment may be reduced.
  • While the initial versions of both the House and Senate bills generally lower tax rates, some taxpayers might still end up being subject to higher tax rates in 2018, either because of tax law changes or simply because their income goes up next year. If you’re among them and the property tax deduction is retained, you may save more tax by holding off on paying property tax until it’s due next year.

It’s still uncertain what the final legislation will contain and whether it will be passed and signed into law this year. We can help you make the best decision based on tax law change developments and your specific situation.

© 2017

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Make the holidays bright for you and your loved ones with annual exclusion gifts

As the holiday season quickly approaches, gift giving will be top of mind. While gifts of electronics, toys and clothes are nice, making tax-free gifts of cash using your annual exclusion is beneficial for both you and your family.

Even in a potentially changing estate tax environment, making annual exclusion gifts before year end can still benefit your estate plan.

Understanding the annual exclusion

The 2017 gift tax annual exclusion allows you to give up to $14,000 per recipient tax-free without using up any of your $5.49 million lifetime gift tax exemption. If you and your spouse “split” the gift, you can give $28,000 per recipient. The gifts are also generally excluded from the generation-skipping transfer tax, which typically applies to transfers to grandchildren and others more than one generation below you.

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can also avoid gift and estate taxes.

Making gifts in 2017 and beyond

Be aware that time is running out to make annual exclusion gifts this year: December 31 is the deadline. It’s also important to know that next year the exclusion amount increases for the first time since 2013, to $15,000 ($30,000 for split gifts). And the inflation-adjusted gift and estate tax exemption is currently scheduled to increase to $5.6 million in 2018.

It’s also important to keep an eye on Congress. With both the U.S. House of Representatives and U.S. Senate now having released their tax reform bills, more details regarding the potential future of the estate tax have emerged. But what, if any, estate tax law changes are ultimately passed remains to be seen. Even if the estate tax is repealed, it likely won’t be permanent. And current proposals retain the gift tax. So making 2017 annual exclusion gifts can still be a tax-smart move.

In the meantime, we can help you determine how to make the most of your 2017 gift tax annual exclusion and keep you abreast of the latest regarding new estate tax laws.

© 2017


U.S. House Bill Released

The U.S. House bill has been released. The proposed Tax Cuts and Jobs Act would retain a 39.6% tax bracket for married couples with income of more than $1 million annually. The corporate tax rate would be cut from 35% to 20% and there would be a 25% “pass-through” business rate. The estate tax would be phased out over 6 years. The mortgage interest deduction would be limited for newly purchased homes and the property tax deduction would be retained but limited. The child tax credit would rise from $1,000 to $1,600. For complete details, go to

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Preparing for FASB’s New Credit Loss Model

Much like winter, preparing for the current expected credit loss (CECL) is looming. As sure as winter will be here any day now, CECL will become effective in 2020 or 2021 (depending on the institutions characteristics). This may seem far off for some of you, but a plan needs to be put in place now detailing how this new credit loss standard will be integrated into your bank. Failure to do so could result in misstatements and improper evidence and documentation.

Below are some first steps to consider for the new CECL implementation:

  1. Determine your bank’s effective date.
  2. Educate your directors and staff.
  3. Form a CECL committee, including people from all functions of the bank. Schedule and hold meetings now to begin and properly execute a plan.
  4. Create a timeline for implementation.
  5. Determine what data is relevant and should be collected, the steps needed to collect the data, and a plan for how you will house that data.
  6. Think about the model you will use, and consider if you will create your own model or engage with a vendor.
    a.     Disaggregate portfolio—for example, portfolio segment, class of asset, etc.
    b.     Further disaggregate—for example, categorization of borrowers, financial asset, industry, type of collateral, geographic distribution.
    c.     Apply credit-quality indicators—for example, credit scores, internal credit grades, loan-to-value, collection experience, collateral.
    d.     Apply loss statistic based on collected data. Many models are available, but there are no specific requirements in the guidance. Remember, your model only needs to be as complicated as your bank.
    e.     Experiment with different models to determine which is best for your bank and most accurately reflects the needed estimated reserve.
  7. Get your plan and model vetted with your Board of Directors and then with the regulators.
  8. Evaluate and plan for the impact on regulatory capital.

As is expected with such a complicated change in accounting standards, there remain countless questions and concerns for implementation. The FDIC issued an updated Financial Institution Letter (FIL) in September 2017 to help addresses these questions and concerns. The FIL can be found by following this link:

This article was originally Co Authored by Chuck Marshall and Melissa DeDonder.

Should you have any questions or would like assistance with implementation, please contact Jack Matthis at 731.686.8371 or