Prepaid 2018 Property Tax- will you take the deduction

[bizlady]

So.... like I suspect many of you, we prepaid our 2018 property taxes to get the deduction in tax year 2017. The IRS guidance is a but vague on deductibility. After reviewing the directions in Publication 17 for 2017, I do not see anything that suggests we cannot take that deduction.

Our state allows the same deductions as allowed on federal, so ultimately we potentially save here also.

Curious as to what the rest of you are thinking...

 

[pb4uski]

I don't think the IRS guidance is vague at all. If the property tax was BOTH assessed and paid prior to 12/31/2017 then it is deductible.

So for example, if someone went in in December 2017 and paid their 2018 property taxes and that property tax jurisdiction had a calendar year fiscal year and had not yet set 2018 property tax rates or billed 2018 property taxes then IMO the IRS would deny the deduction.

OTOH, if a jurisdiction had a 10/1/2017-9/30/2018 fiscal year and has billed property taxes for that period but the property taxes are due in quarterly installments on 10/1, 1/1/18, 4/1/18 and 7/1/18 .... whatever was paid in 2017 would be deductible in 2017.

 

[bizlady]

It's that word assessed that is gray for us. The county had determined the value of the property and the amount of the tax. The state requires the cities and schools to finalize their rates by Dec 20 each year, so we paid after that date. But the final bills are not mailed until March 2018 payable in 2018.

Dictionary defines assessed as:
as·sess (ə-sĕs′)
tr.v. as·sessed, as·sess·ing, as·sess·es
1. To determine the value, significance, or extent of; appraise. See Synonyms at estimate.
2. To estimate the value of (property) for taxation.
3. To set or determine the amount of (a payment, such as a tax or fine).
4.
a. To charge (a person or property) with a special payment, such as a tax or fine.
b. Sports To charge (a player, coach, or team) with a foul or penalty.

Local tax preparers are divided. I suppose to be safe we can ignore that and amend later... just hate to leave any money on the table.

 

[pb4uski]

I agree that assessed is the key word.

You say that the assessed value for the 2018 property taxes has been finalized. Did the jurisdiction set the 2018 property tax rate set in 2017? If not then I think it is hard to argue that it has been assessed.

What period is the tax for? Sounds like 1/1/2018-12/31/2018 from what you wrote. If none of the period for which the tax relates to is in 2017, it wasn't billed until 2018 nor is it payable until 2018, then I think it isn't deductible.

We had a pretty robust discussion of this back in late December. See around post 545.

http://www.early-retirement.org/forums/f28/release-of-final-tax-bill-details-89791-6.html

 

[njhowie]

At the end of the day, I seriously doubt that the IRS is going to put the screws to anyone over this as the numbers who were prepaying was enormous. So long as the amounts deducted are not outrageous I do not believe anyone is going to receive a letter asking for proof. If you claim an amount which is 2 or more full years worth of taxes, then it will probably raise some flags.

Our township sends us 4 quarters billing in August every year for Q3/Q4/Q1/Q2. So we had payment coupons for 2018 Q1 and Q2 due Feb 1 and May 1, so that's the extent which we prepaid.

 

[Sunset]

We as normal every 2 years, got a bill for approx 1/2 of the taxes due next year.
So we will claim this extra payment as normal since to us.

This will be the last year to itemize.

 

[pb4uski]

At the end of the day, I seriously doubt that the IRS is going to put the screws to anyone over this as the numbers who were prepaying was enormous. So long as the amounts deducted are not outrageous I do not believe anyone is going to receive a letter asking for proof. If you claim an amount which is 2 or more full years worth of taxes, then it will probably raise some flags.

Our township sends us 4 quarters billing in August every year for Q3/Q4/Q1/Q2. So we had payment coupons for 2018 Q1 and Q2 due Feb 1 and May 1, so that's the extent which we prepaid.

You should be fine as the Q1/Q2 installments were assessed and billed in 2017 but were just due later and you chose to prepay them.

Had you also prepaid the installments due in Q3/Q4 2018 then I think that would not be deductible. The slippery slope is if you allow that then why can't one prepay and deduct 2018 to 2028? That is why the assessed constraint exists.

 

[phil1ben]

We also have property in NJ. We prepaid 1st and 2d Quarter 2018 also. That is because in NJ we actually have a tax bill for those quarters. We also have properties in Pennsylvania where we don't receive the first tax bill (for municipality and county) until February, 2018 so we couldn't prepay.

 

[Z3Dreamer]

A slightly different spin. My lender escrows and pays real property tax. I own other properties that are not escrowed. So, I receive 4 bills, one of which is the escrowed property. The bill does not say anything about not paying. Does not say that the lender will pay. In my haste at year end. I cut a check for all 4. The local authorities cashed the check. I seriously doubt they will refund it. Some would say that I can only deduct the correct amount for that property. Since the locals will not refund the money, some will say I should deduct it in 2017.

I forgot to say that the bills were mailed to me somewhere in mid 2017 and were DUE in Sept 2017 but are considered late if not paid by January 6, 2018 or there abouts.

 

[gayl]

Of course but I get the bill in October with payments due by December 10th & April 10th so assessed / billed / 3 pymts in 2017

 

[Uncle Lumpy]

I think everyone needs to be extremely clear with the terminology here. In Ohio (as well as in at least some other states), property tax bills come out lagging the period which they cover. For example, the calendar year 2017 property taxes in Ohio are typically billed in 2 installments, Jan 2018 and Jun 2018. This year, the county I live in had 2017 calendar year amounts available to be paid (meaning audited by the state of Ohio) on Dec 20, 2017. At that point they were considered assessed even though they weren't due until Feb (1/2) and Jul (1/2) of 2018. I did not PREPAY my 2017 property taxes--I simply paid the bill earlier than the typical final due date.

Had I prepaid the 2018 property taxes, as pb4uski indicated above, that payment would not be deductible for my 2017 taxes as it had not yet been assessed (and won't be until late Dec 2018).

Lumpy

 

[gayl]

Got it, Uncle Lumpy. Then I didn't prepay

 

[pb4uski]

A slightly different spin. My lender escrows and pays real property tax. I own other properties that are not escrowed. So, I receive 4 bills, one of which is the escrowed property. The bill does not say anything about not paying. Does not say that the lender will pay. In my haste at year end. I cut a check for all 4. The local authorities cashed the check. I seriously doubt they will refund it. Some would say that I can only deduct the correct amount for that property. Since the locals will not refund the money, some will say I should deduct it in 2017.

I forgot to say that the bills were mailed to me somewhere in mid 2017 and were DUE in Sept 2017 but are considered late if not paid by January 6, 2018 or there abouts.

Did your lender also pay it out of your escrow?

 

[ERD50]

Looks like my pre-paid taxes are not deductible, as I learned from this forum in that earlier thread. Our County does not actually assess an exact $ number and bill us in 2017 for any part of the taxes due in 2018.

My beef with the County is, they didn't have any problem collecting all this money from people waiting in lines to pay. They even made some changes to make it easier to pre-pay. Now, if the people on this forum were able to decode the requirements, our County officials (tax professionals) sure should have been clear to people that the way they bill means it's not deductible. I'm sure they knew (or should have), but remained silent.

Seems like a lousy way to treat the people who pay your salary.

But I guess I should push it with them, after all, in future years there may be a lot of people who could bunch deductions every other year, and by simply billing us in December, it would be possible for some.

-ERD50

 

[Z3Dreamer]

Did your lender also pay it out of your escrow?

Yes. They paid in 2017

 

[pb4uski]

.... My beef with the County is, they didn't have any problem collecting all this money from people waiting in lines to pay. They even made some changes to make it easier to pre-pay. Now, if the people on this forum were able to decode the requirements, our County officials (tax professionals) sure should have been clear to people that the way they bill means it's not deductible. I'm sure they knew (or should have), but remained silent. ...

I had a brief email exchange with our town clerk on this very topic. I had talked with the assistant town clerk to see if I could prepay earlier in the day that the IRS advisory was released and she said that some people were prepaying and that she had a few checks come in. After the IRS advisory came out I emailed it to her and suggested that they might want to let some of these taxpayers that prepaid aware of the advisory before depositing those checks since they might want their checks back if they now know that the prepaid taxes would not be deductible (our town year is a calendar year). The town clerk then responded that she agreed that it would not be deductible because it had not been assessed but that the town accepts prepayments just like any other towns do... IOW, that's their problem I'm keeping the prepayment.

 

[donheff]

DC tells us we are good to go so I am going.

 

[ERD50]

An Update...

A belated update on my earlier rant (re-posted below).

This must have been discussed in another thread as well, as I recall (but couldn't find) saying that I was really tempted to just claim the deduction anyhow, figuring they won't question it, or if they do there will be little/no penalty, just will need to pay the difference. edit: here's that post:

http://www.early-retirement.org/forums/f28/release-of-final-tax-bill-details-89791.html#post1986730

But I chickened out, figured why risk any annoyance with that, and it just wasn't the right thing to do anyhow. My angel side won.

So I submit my 1040 at the end of March, and a week later, our county treasurer informs us that since our property taxes are paid in arrears, they have determined that 'extra' payments made in 2017 can be deducted on the 2017 taxes! Too bad I didn't wait a week to submit my taxes!

Illinois is unique in that property tax payments made each year are actually paying for the previous year.

As a result, prepaid property taxes made at the end of 2017 were actually prepaying 2017 property taxes, not 2018.

So I finally got around to filing a 1040X, got my check, so now I can submit the paperwork to IL (they say you need confirmation from Feds first).

Whew!

This won't help me to bundle in future years, I'll hit the limits anyhow.

I hate taxes!

-ERD50

Looks like my pre-paid taxes are not deductible, as I learned from this forum in that earlier thread. Our County does not actually assess an exact $ number and bill us in 2017 for any part of the taxes due in 2018.

My beef with the County is, they didn't have any problem collecting all this money from people waiting in lines to pay. They even made some changes to make it easier to pre-pay. Now, if the people on this forum were able to decode the requirements, our County officials (tax professionals) sure should have been clear to people that the way they bill means it's not deductible. I'm sure they knew (or should have), but remained silent.

Seems like a lousy way to treat the people who pay your salary.

But I guess I should push it with them, after all, in future years there may be a lot of people who could bunch deductions every other year, and by simply billing us in December, it would be possible for some.

-ERD50

 

[sanfanciscotreat]

In our state property taxes are assessed and billed in late Fall and due by Feb 1, so one can easily pay two years taxes in the same calendar year

 

[bizlady]

I'm the OP. We filed without the deduction. But this past week, I filed amended returns for federal and state, knowing they might get rejected or perhaps even a claw back down the road. But we are not going to leave money on the table because the bureaucracy cannot decide.

Our state (MN) commissioner of revenue wrote the IRS in March, and still has no response. The letter to the IRS reads in part:

"....The IRS issued guidance on December 27, 2017, indicating that state or local law would determine whether prepayments would be deductible in 2017 based on whether the real property taxes were assessed. That guidance, however, is not specific to Minnesota law and its property tax assessment system. Currently, Minnesota taxes begin with Federal Taxable Income on the individual income tax return. Therefore, if the IRS allows the deduction, it will carry forward to the Minnesota return.

The examples in the December 27th Advisory do not clarify the IRS’s stance for Minnesota taxpayers and preparers. Our state’s taxpayers and tax professionals need to know how the IRS will treat these prepayments. …"

So let the chips fall where they may- I am willing to take my chances. Those friends who have tax preparers all took the deduction feeling it was appropriate.