Release of final tax bill details

[meierlde]

Quote:

Originally Posted by ERD50 At our Christmas Eve and Christmas Day gatherings, I brought up the opportunity of pre-paying 2018 property tax, and explained the savings opportunity to evryone. It turned into a "teachable moment" for me to address to my own kids later. Two of my three kids are homeowners, they are all financially responsible, and they "got it" when I explained it to them. They said they had heard about it in general, and after my explanation are definitely going to do it. And my non-LBYM-not-so-financially responsible BIL/SIL (near our ages) snarls "Sure that's great if we had $10,000 laying around, it's no help if you have to borrow the money". I said, well, at 25% back by April, and the tax bills due about mid year anyhow, it actually probably would be worth borrowing the money (but I know they won't/can't). Later, I reinforced to my kids how having some savings can really help, because you can take advantage of deals like this when they come up. The old "it takes money to make money" approach. W/o naming names (BIL/SIL), I'm pointing out that the people w/o $10,000 of liquidity are the ones that could really benefit from a $2,500 savings in April (or before), and yet, they will be another $2,500 behind, for lack of that liquidity. Just digging deeper in the hole. I'l make the trip to the county seat tomorrow. This is really far more than a 25% annualized savings, as paying in DEC provides the return just a few months later. And you'd be paying the property tax ~ mid year (varies by county) anyhow. We will also get a deduction on IL state taxes (@ 5%) this year, though that's washed out the following year. -ERD50

Note that if your taxes are paid thru escrow it may well be much harder to do this. In particular the escrow amounts will continue so you will have in effect double paid for a while although in 2019 you probably could get the mortgage company to true up. What will happen is that the mortgage company will not know you prepaid and pay the bill when the taxing agency sends it. Eventually someone will get notified of the overpayment and if you get the money back directly you have a problem of the deduction no longer being valid.
If the mortgage company gets the money back it will true up in a lower mortgage payment for 2019.

[ERD50]

Quote:

Originally Posted by meierlde Note that if your taxes are paid thru escrow it may well be much harder to do this. In particular the escrow amounts will continue so you will have in effect double paid for a while although in 2019 you probably could get the mortgage company to true up.

Well, I figured the escrow companies should be automated enough to see what the balance is and adjust the monthly escrow accordingly. But to be sure, my Son-in-law called this morning while before heading home, and his mortgage company validated that all he had to do was to email a scan of the paid bill, and they will make the adjustment.

I'd be surprised if an escrow company would not do this, if they didn't you'd have a 2x balance by the time taxes are due, and it would continue forever. But I suppose anything is possible.

-ERD50

[Yarnstormer]

My accountant says it’s not legal to deduct 2018 taxes on a 2017 return - regardless of when it was paid. Does someone here know differently?

[Texas Proud]

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Originally Posted by Yarnstormer My accountant says it’s not legal to deduct 2018 taxes on a 2017 return - regardless of when it was paid. Does someone here know differently?

Only if you are an accrual taxpayer... if you are cash it is legal... why do you think everybody is doing it...

Now, that is if the tax entity will accept it FOR 2018... not all will...

[Running_Man]

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Originally Posted by Texas Proud Only if you are an accrual taxpayer... if you are cash it is legal... why do you think everybody is doing it... Now, that is if the tax entity will accept it FOR 2018... not all will...

IRS just issued advisory, that in order to be deducted it must be PAID and ASSESSED, in other words the county has to have actually issued the bill and the IRS plans on using the County's date that they say taxes are assessed. In other words you can not pay a bill that has not been issued and you are estimating what the payment will be. In fact prepayment may indeed eliminate the deduction if you were to take it in 2018 since you cannot take the prepayment in 2017 as you will not meet the test of both Paying and being assessed.

[ERD50]

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Originally Posted by Running_Man IRS just issued advisory, that in order to be deducted it must be PAID and ASSESSED, in other words the county has to have actually issued the bill and the IRS plans on using the County's date that they say taxes are assessed. In other words you can not pay a bill that has not been issued and you are estimating what the payment will be. In fact prepayment may indeed eliminate the deduction if you were to take it in 2018 since you cannot take the prepayment in 2017 as you will not meet the test of both Paying and being assessed.

Got a source/link for that? I could not find anything.

Gonna be a lot of PO'd people if this is disallowed in general - lots of us stood in line for an hour, and/or had to jump through some last minute hoops to have $ available.

also - I paid my January mortgage bill today on-line. That should add a little to my deductions.

-ERD50

[Cobra9777]

Quote:

Originally Posted by Running_Man IRS just issued advisory, that in order to be deducted it must be PAID and ASSESSED, in other words the county has to have actually issued the bill and the IRS plans on using the County's date that they say taxes are assessed. In other words you can not pay a bill that has not been issued and you are estimating what the payment will be. In fact prepayment may indeed eliminate the deduction if you were to take it in 2018 since you cannot take the prepayment in 2017 as you will not meet the test of both Paying and being assessed.

Do you have a link? I'd like to read the actual language.

[Running_Man]

Was on CNBC they just got a copy of an advisory issued by IRS. Would imagine it will filter through news in the next couple of days.

https://www.cnbc.com/2017/12/27/irs-...d-in-2017.html

Here is CNBC Story

[Dave J]

https://www.irs.gov/newsroom/irs-adv...d-paid-in-2017

[foxfirev5]

Quote:

Originally Posted by Running_Man Was on CNBC they just got a copy of an advisory issued by IRS. Would imagine it will filter through news in the next couple of days. https://www.cnbc.com/2017/12/27/irs-...d-in-2017.html Here is CNBC Story

I checked my bills for this month and they all state 2017 winter taxes. The article makes sense.

[sheehs1]

Quote:

Originally Posted by Running_Man IRS just issued advisory, that in order to be deducted it must be PAID and ASSESSED, in other words the county has to have actually issued the bill and the IRS plans on using the County's date that they say taxes are assessed. In other words you can not pay a bill that has not been issued and you are estimating what the payment will be. In fact prepayment may indeed eliminate the deduction if you were to take it in 2018 since you cannot take the prepayment in 2017 as you will not meet the test of both Paying and being assessed.

That makes sense. I was warned by my CPA that the IRS has (had) not ruled on this yet and could disallow the deduction on any 2018 prepays. Besides, I don't think my state allowed prepays.

[ERD50]

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Originally Posted by Dave J https://www.irs.gov/newsroom/irs-adv...d-paid-in-2017

Well that sucks! So our county paid people to work overtime to handle the crowds, me and my kids stood in line and tied up money to do this (I was even suggesting people borrow money if they have to), and NOW they release the more detailed explanation that says 'no'.

I won't bother writing my congressperson (he won't care, for reasons I won't discuss here), but I will write the Congress leaders and the White House to insist they allow this deduction. It sucked in the first place to make the changes so close to the end of the year, making people scramble during the holidays, and the rulings should be in place so people know what to do.

I suspect (hope?) that they will get enough pressure to revere(?) this, and allow the deduction for pre-paid property tax.

-ERD50

[ERD50]

Hmmm, another tactic - could we get our county to issue bills in the next few days?

-ERD50

[ERD50]

Seems like this should get overturned on precedent.

Isn't there a significant number of people who double up on various deductions every other year? I bet many of them prepaid their property taxes, and it got accepted, and I bet along the way some of them were even audited, and it was allowed.

Doesn't that set a precedent? If people have been doing that in my county, doesn't that mean it has been accepted, and should be accepted now?

Yes, I know "logic" and taxes don't mix.

-ERD50

[SecondCor521]

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Originally Posted by ERD50 Seems like this should get overturned on precedent. Isn't there a significant number of people who double up on various deductions every other year? I bet many of them prepaid their property taxes, and it got accepted, and I bet along the way some of them were even audited, and it was allowed. Doesn't that set a precedent? If people have been doing that in my county, doesn't that mean it has been accepted, and should be accepted now? Yes, I know "logic" and taxes don't mix. -ERD50

Precedent is a term that applies to case law, not statute law, which is what the new tax law would be. Two different things, so you are correct that they don't really have anything to do with each other. Also, since the tax law has changed in the last few days, what is legal now is different from what was legal in the past.

Even so, I don't know if anyone has ever been able to prepay taxes which have not yet been assessed. Most bunching strategies I know of rely on at least having a bill to pay; the current IRS regulation is not new in that respect.

[pb4uski]

Quote:

Originally Posted by ERD50 Seems like this should get overturned on precedent. Isn't there a significant number of people who double up on various deductions every other year? I bet many of them prepaid their property taxes, and it got accepted, and I bet along the way some of them were even audited, and it was allowed. Doesn't that set a precedent? If people have been doing that in my county, doesn't that mean it has been accepted, and should be accepted now? Yes, I know "logic" and taxes don't mix. -ERD50

But... where taxpayers have lumped deductions they have still paid on taxes assessed, but where the installments may have overlapped tax years... for example a jurisdiction with a calendar year where taxes are due July 1 and January 1.

In year 2010 the taxpayer makes only the July 1, 2010 payment and takes the standard deduction.

In 2011, the taxpayer makes the second 2010 tax payment when due on Jan 1, 2011, and for taxes assessed for 2011 makes July 1, 2011 payment and prepays the installment due on Jan 1, 2012 in December 2011 and itemizes taking a deduction for 3 assessed and paid property tax payments.

Rinse and repeat... but in all cases as of Decemer 31 of the tax year at issue the property taxes have been assessed.

In our cases, the taxes have not yet been assessed for 2018 so we can't take a deduction for paying them.

If you didn't have this assessment constraint and it was just cash basis then a taxpayer could have sent the town a $100,000 check and taken a $100,000 deduction.

[RobbieB]

Exactly. Why not pay your estimated property tax for the next 10 years so you won't have to write checks for a while?

[Clone]

Quote:

Originally Posted by ERD50 Isn't there a significant number of people who double up on various deductions every other year? I bet many of them prepaid their property taxes, and it got accepted, and I bet along the way some of them were even audited, and it was allowed.

It seems there are variations in how the states present their property tax bills. Here is the wording from my property tax statement:

Quote:

Taxes for July 1, 2016 through June 30, 2017. Payable September 2017 and March 2018.

So I am always paying for previous taxes. I can make 3 payments this year, then 1 payment next year. Down the road it won't make any significant difference, as we will be close to the $10k SALT limit anyway.

[ERD50]

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Originally Posted by SecondCor521 Precedent is a term that applies to case law, not statute law, which is what the new tax law would be. Two different things, so you are correct that they don't really have anything to do with each other. Also, since the tax law has changed in the last few days, what is legal now is different from what was legal in the past. Even so, I don't know if anyone has ever been able to prepay taxes which have not yet been assessed. Most bunching strategies I know of rely on at least having a bill to pay; the current IRS regulation is not new in that respect.

I just did it today, as did my two children (3 different counties in IL, Lake, Cook, and Will). My county (LAKE, IL) accepts prepayments for amounts normally due in 2018 up to the amount of this years tax assessment (and I believe that has been in force for a while, but I never had any reason to prepay before).

Of course, the county has not weighed in on whether the prepayment is deductible on Fed taxes, but they do accept the prepayment prior to the assessment - and this is the case in every county I have checked for relatives.

Quote:

Originally Posted by pb4uski But... where taxpayers have lumped deductions they have still paid on taxes assessed, ... If you didn't have this assessment constraint and it was just cash basis then a taxpayer could have sent the town a $100,000 check and taken a $100,000 deduction.

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Originally Posted by RobbieB Exactly. Why not pay your estimated property tax for the next 10 years so you won't have to write checks for a while?

My county (and this seems common) limits the prepayment to the prior years tax. Cook limits the prepayment to the 1st (of 2 I think) assessments.

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Originally Posted by Clone It seems there are variations in how the states present their property tax bills. .... Down the road it won't make any significant difference, as we will be close to the $10k SALT limit anyway.

Right, municipalities have different rules, making it difficult to comment in general.

For many, going forward I think the higher standard deduction eliminates the need to itemize, and that's the reason for many to try to lump next year's payments into this year, not the $10K limit. Just depends on the personal situation.

-ERD50

[pb4uski]

FWIW, I don't think today's advisory plowed any new ground, but just reminded practitioners and taxpayers what the existing rules are.