In the final tax reform legislation, House and Senate negotiators agreed to allow taxpayers to deduct up to $10,000 in a combination of property taxes, income or sales taxes. Does that help high-net-worth clients?

“Many HNW individuals pay more than $10,000 in property tax, so expanding the scope of deductible taxes to include either income or sales taxes will probably not benefit many [such] individuals,” noted John Werlhof, principal at CliftonLarsonAllen in Sacramento, Calif.

As with many aspects of this reform, misconception and misinformation abounded about the property tax deduction. Steven Goodman, CPA and, CFP with Goodman Financial in Houston, said some clients may believe that the limitation is on a property by property basis, meaning $10,000 per property. “In reality, the limitation applies to the aggregate amount of all of the taxpayer’s residential property taxes as well as state and local sales and income taxes combined. Early news articles also stated that the bill would prohibit prepaying 2018 taxes in 2017 to expedite the deduction,” Goodman added. “The reality is that such prohibition only applies to state and local income taxes.”

Perhaps the most important misconception? “Although the tax rates are decreasing, those in high (income and property) tax states could have effective tax rates in 2018 very close to, or even higher, than 2017,” said Barry Kleiman, CPA and principal at Untracht Early in Florham Park, N.J..

The benefit of the incoming property tax deduction can depend on your HNW client’s circumstances. In California, for example, “the main complaints are about the loss of the state income tax and property tax deductions,” said Robert Seltzer, CPA at Seltzer Business Management, Los Angeles.

“HNW clients should prepay their 2018 property taxes by Dec. 31,” Goodman said. He cautioned against accidentally triggering AMT liability, as well as against prepaying the taxes using additional taxable IRA distributions. “Consideration may be given to converting some personal use real property to business/rental real estate such that deductions may be allowed,” he said.

Another possible factor is the alternative minimum tax. “Clients in the AMT should feel less discomfort since the tax deduction was limited, but some HNW clients may see their property values drop,” said John Lieberman, CPA, from Perelson Weiner in New York and member of the New York State Society of CPAs.

“If you are subject to the AMT, you generally will not receive the full federal benefit of your property tax deduction. Even if you are subject to the AMT, you may still receive some type of benefit at the state level. With the proposed new legislation, it still may be worthwhile to prepay your real estate taxes by Dec. 31,” added Patrick Daly, CPA and partner at Citrin Cooperman in New York and member of the Manhattan/Bronx chapter of the New York State Society of CPAs.

“Individuals should contact their local tax assessor to determine the procedure to accelerate the payment,” he added. “In addition, some real estate is overvalued, and individuals should also be challenging the assessments imposed. The cap of the property tax deduction could be an issue on the construction and resale of more expensive homes. Also revisit selling second and third homes if those homes were obtained for tax benefits in prior years.”

Werlhof doesn’t think the limitation of the property tax deduction will help HNW clients, but “the limitation is just one piece of the overall tax reform package that provides approximately $1.5 trillion in tax cuts,” he said. “Many HNW clients will be better off as a result of tax reform even if it means losing part of their property tax deduction.”