It's Fall: 10 Weeks Of Alternative Minimum Tax Planning Ideas...week 2 Property Taxes

Real estate taxes

Similar to state income taxes, for Regular Tax purposes you are allowed a deduction for property taxes that you pay. Under the AMT, however, you are allowed no deduction for property taxes. This problem affects 94 percent of all folks stuck in the Alternative Minimum Tax, so it is something that you definitely need to look at. This also represents one of the easiest AMT planning opportunities.

Property tax assessment and billing cycles vary among the states, but the basic concept of your control over paying a tax bill in December or in January as we previously discussed regarding state income taxes also applies to property taxes.

As an example, here is a sample of an actual property tax bill you would have on a $500,000 residence in a state that assesses the tax in the fall, and then gives the taxpayer a choice of payment dates in accordance with a set schedule. With this example we can see how easy it is to have a direct impact on the AMT you pay.

Assessed Value - $500,000

Total property tax rate 1.0724%

Property tax due - $5,362

Due Date 12/31/09

Payment Schedule as shown on the actual Bill:

If paid by this date 10/31/09 the amount due is - $5,255 (2% Discount)

If paid by this date 12/31/09 the amount due is - $5,362 (Full amount)

If paid by this date 1/31/10 the amount due is - $5,630 (5% Penalty)

If paid by after this date 1/31/10 the amount due is $6,488 (21% Penalty)

The AMT-saving strategy for property taxes is extremely simple here, since you have a choice of paying your property taxes in 2009 or in January, 2010. The simple act of when you write out the check will have a direct impact on the AMT you will pay. As mentioned above, you get no benefit from a property tax deduction in a year you are in the AMT. By paying your property taxes paid in a year you are not in the AMT, you will achieve real tax savings.

In this example, if you are in the AMT this year but do not expect ot be in the AMT in 2010, by waiting until January to pay this bill you will save up to 35% in Federal income taxes. This obviously is much great than the 2% discount you will forego and the 5% penalty you will incur.

Your particular states assessment and billing cycle likely will vary from this example, but the concept is the same to the extent you can, without incurring penalties with which you would not be comfortable, control even a portion of the timing of payment of your property taxes, you can save on your AMT bill.

Personal property taxes

Many states impose taxes on the value of personal property that you own. Common examples are automobiles, boats, RVs and the like. Like real estate taxes, personal property taxes are deductible for the Regular Tax but not for the Alternative Minimum Tax, so here is one more, although smaller, planning opportunity.

Assume your personal property tax rate is 1.5%, for example, and you have a $40,000 car. Your tax will be $600. If you have the opportunity to pay this in one year versus another (the December - January example above), this could be an easy way to shave a few hundred dollars off your AMT bill.

by: George Bauernfeind

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