Property deduction caps will affect income taxes

| May 25, 2018 | Income Tax

Property deduction caps were recently implemented in Connecticut and other high property tax states. Many believe this to be unfair and are looking for ways around these new limits. While this deduction cap may hurt one’s income taxes, skirting the system may cause more harm than good.

The Internal Revenue Service recently issued a warning to taxpayers who utilize workarounds for this deduction cap. Some states have passed legislation, allowing homeowners to pay property taxes to specific charitable organizations, allowing them to claim them as charitable deductions that do not have the same cap as the property tax cap. According to certain lawmakers, such a workaround is still tax evasion.

So, what will happen to Connecticut residents who are caught trying to claim deductions in other categories to make up for this deduction cap on property taxes? If the IRS decides to pursue the matter, those caught may have to pay serious fines and more in taxes and interest. Is it worth it? Only time will tell.

If a state makes a deduction workaround possible, can the IRS pursue actions against someone who utilizes it? The IRS believes so, but others believe this will only result in litigation. How all this will play out has yet to be seen. Connecticut residents who have questions and concerns about the new property deduction cap, and how it will affect their income taxes, can seek guidance from legal counsel. This they may want to consider doing before making any tax decisions that could have significant consequences.

Source: msn.com, “IRS warns taxpayers on avoiding property deduction caps”, Lynnley Browning, May 23, 2018

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