Since being married, my wife and I have always been able to itemize our deductions. Between mortgage interest, property taxes, and state taxes, our itemized deductions have always exceeded the standard deduction amount. This has been great come tax time. But, it looks like the ability for us to itemize is coming to an end.
As such we’re going all in this year.
Why Itemized Deductions May Not Happen After This Year
Over the past couple of years, I’ve noticed that the gap between our itemized deductions and the standard deduction has gotten smaller. The main culprit is our mortgage interest. We are just over five years into our fifteen year mortgage. Each month a bigger chunk goes toward principal and less toward interest. In the grand scheme of things, this is fantastic, but it definitely changes strategy when it comes to itemizing.
I’ve calculated that if nothing were to change, we’d end up claiming the standard deduction beginning with our 2016 taxes. I’ve seen this day coming, so we’ll be doing a couple of things to not only keep the ability to itemize, but maximize the amount.
How We’re Maximizing Our Itemized Deduction
First, we’ll pay our winter property tax in 2016. The tax bill comes in November and is due in February. Typically, we pay right around the due date, so that we keep our money in our pockets for the longest possible amount. This year, we’ll make our payment before the end of the year. Since we paid last year’s winter bill as well as the summer bill in 2016, we’ll have made three payments this year. Since the deduction is based on the year you make the payment, this will work in our favor.
Second, we’ll make our January mortgage payment in December. This means that we’ll make 13 payments this year. Again, since the amount is based on the date you actually make the payment, we’ll get the extra amount in interest on this year’s taxes itemization list.
Looking ahead, we certainly won’t be able to itemize next year. Which is fine. I’m hearing that if Trump gets his way with some of his tax plan changes, the standard deduction amount would be going up. This means that we likely wouldn’t have been able to itemize anyway.
So, the timing couldn’t have been more perfect, as least on how things are looking today. You never know how things will change, of course. Still, for now it looks like we’ll end up with a few hundred extra dollars in our favor when it comes time to calculate our 2016 taxes.
Readers, what tax strategies are you employing for the end of the year? Are you doing anything special because of Trump’s tax plan or are these things you might do otherwise? Let me know in the comments below.