Coverage: IRS says property tax prepayments may not pay off
The Internal Revenue Service announced that property tax prepayments could be deducted only in limited circumstances, a decision that appeared to invalidate many taxpayers’ efforts and raised the prospect that local governments could come under pressure to refund millions of dollars.
Peter Jamison, Jeff Stein and Patricia Sullivan of The Washington Post had the story:
The announcement stoked confusion surrounding one of the most controversial elements of the tax law — a $10,000 cap on deductions for state and local taxes that will disproportionately affect higher-tax, Democratic-leaning states. It also offered a glimpse of the kind of hiccups that could arise in coming weeks as the IRS releases guidance on other facets of the bill, the largest overhaul of federal tax law in three decades.
In affluent states with high taxes and property values, local officials have been besieged in recent days by people trying to pay their 2018 property taxes early so they can deduct those payments before the cap takes effect.
However, the IRS said Wednesday that filers could only avoid the cap by paying property taxes that have been assessed in 2017. Many local governments, including most Washington-area jurisdictions, have not completed assessments for upcoming years.
Critics said the last-minute confusion underscored the haste with which Republicans passed their tax bill, completed in record time for such a far-reaching piece of legislation.
Neal Augenstein of WTOP wrote that those who prepay still face a $10,000 cap:
The new federal law will cap deductions at $10,000 for all combined state and local taxes, including both income and property taxes.
On Wednesday, the Internal Revenue Service announced that prepayments could only be deducted under a few scenarios.
Residents of the District of Columbia who prepay should be able to deduct their taxes in 2017, because of specifics in D.C. law, according to a Thursday statement from Chief Financial Officer Jeffrey DeWitt.
The IRS statement said “whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.”
Kelly Phillips Erb of Forbes reports that it depends on whether the 2018 taxes are already assessed:
As part of IR-2017-210: IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017, the IRS declared that whether the deduction is allowed “depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018.” That’s consistent, so far as I can tell, with their prior treatment of prepayments. By way of additional clarification, a prepayment of “anticipated real property taxes that have not been assessed prior to 2018” would not be deductible in 2017. That is also consistent with their prior treatment of prepayments.
So who decides whether those taxes will be assessed prior to 2018? The respective state or local authorities.
As I noted before, the City of Philadelphia (which is also a county – fun trivia if you didn’t know) typically issues assessments for the new year in December of the prior year. So, 2018 bills should be in mailboxes now. Under the IRS guidance, those should be deductible in 2017 if paid in 2017.
And, on December 22, 2017, Gov. Cuomo of New York signed an Executive Order authorizing local governments “to immediately issue warrants to levy property taxes by the end of the year.” Assuming those bills go out as intended, they should also be deductible in 2017 if paid in 2017.