To Prepay or Not to Prepay: Insights on Property Taxes
It’s that time of year again when the leaves are turning color, the air is getting crisp, and property taxes are due. As a result, we all face the key decision of whether to pay our property taxes in full and take the 3% discount, or pay 1/3 now and the remainder later.
Many are asking the question, “How do I navigate the financing implications of this decision?”
Let me help you by providing some insight.
If you have a low rate line of credit or the cash, then you should pay in full now. Now you might say, “I only forgo a 3% discount”, but therein lies the confusion.
When we calculate out the two options the choice is simple. This is because you must pay 1/3 of the taxes now. Therefore the only deferral that you receive by foregoing the discount is the deferral of another 1/3 of the tax until February, and an additional 1/3 until May.
If you could put the whole tax off for a year and forego the discount, then the annualize return on this choice would be 3%. But since you need to pay a portion now and the rest relatively soon thereafter, the annualized return to the county is roughly 14%. It is simply a financing decision.
As such, my recommendation is to pay your property taxes in full by November 15th, as opposed to deferring 2/3 of the tax until early next year.
Still curious to learn more about property taxes? Our team at Delap is happy to answer any questions regarding this tax concept, or any other accounting and finance challenges you may be facing.
Reach out today!
Delap LLP is one of Portland’s largest local tax, audit, and consulting accounting firms, located in Lake Oswego, Oregon.