Release of final tax bill details

[ERD50]

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]

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-says-2018-property-taxes-are-deductible-if-assessed-and-paid-in-2017.html

Here is CNBC Story

 

[Dave J]

https://www.irs.gov/newsroom/irs-ad...ductible-in-2017-if-assessed-and-paid-in-2017

 

[foxfirev5]

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-says-2018-property-taxes-are-deductible-if-assessed-and-paid-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]

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]

https://www.irs.gov/newsroom/irs-ad...ductible-in-2017-if-assessed-and-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]

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]

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]

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:

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]

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.

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.

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.

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.

 

[ERD50]

https://taxfoundation.org/property-tax-prepayments-need-assessment/

The IRS guidance issued today means that many individuals who prepaid might not benefit. According to the guidance, an individual’s property tax liability must be paid in 2017 to be deductible, but it must also be assessed. Estimating your property tax liability isn’t enough. The property tax must be billed too.

Already, tax attorneys are on Twitter arguing over what a property tax assessment must contain and whether localities could issue them in the few remaining days of the tax year, so we haven’t heard the last on this issue.

I wrote to my county treasurer to ask if there is anyway they could bill us before year end, maybe just declare them somehow. Don't expect a response, don't know if there is time to figure if this could even be done, but it's something.

I think there will be a lot of political pressure to allow them to be deducted though, so I think something will be done. It affected a lot of people.

-ERD50

 

[audreyh1]

When we bunched payments of property taxes in the past, we were always paying the prior year's taxes in Jan (due by Jan 31 of current year without penalty) and the current year's taxes billed by Oct 31 of the current year in Dec.

When we get the bill for current year property taxes in Oct, it can be paid without penalty until Jan 31 of the next year, and thereafter it they start to add a rather steep penalty.

 

[ERD50]

Just missed your post while typing...

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

I was wondering that, I really don't know - any way we can confirm that?

I'll still bet that a lot of people claimed the deduction in previous years and it was accepted, even if it wasn't correct to do so. That will at least add to the pressure to allow it for 2017, even if it has no legal standing.

-ERD50

 

[meierlde]

When we bunched payments of property taxes in the past, we were always paying the prior year's taxes in Jan (due by Jan 31 of current year without penalty) and the current year's taxes billed by Oct 31 of the current year in Dec.

When we get the bill for current year property taxes in Oct, it can be paid without penalty until Jan 31 of the next year, and thereafter it they start to add a rather steep penalty.

That is the way it works in my county in Tx you get the bills in Oct and they can be paid without penalty until Jan 31. The bill says property taxes due by Jan 31. So in the past you could bunch by paying nothing 1 year and in jan and dec the next year.

 

[pb4uski]

.....any way we can confirm that?....

From Publication 17:

Tests To Deduct Any Tax
The following two tests must be met for you to deduct any tax.

The tax must be imposed on you.
You must pay the tax during your tax year.


The tax must be imposed on you. In general, you can deduct only taxes imposed on you.
Generally, you can deduct property taxes only if you are an owner of the property. If your spouse owns the property and pays the real estate taxes, the taxes are deductible on your spouse's separate return or on your joint return.

You must pay the tax during your tax year.
If you are a cash basis taxpayer, you can deduct only those taxes you actually paid during your tax year. If you pay your taxes by check and the check is honored by your financial institution, the day you mail or deliver the check is the date of payment. If you use a pay-by-phone account (such as a credit card or electronic funds withdrawal), the date reported on the statement of the financial institution showing when payment was made is the date of payment.

If the town or county has not assessed the tax then it has not been imposed on you.

Also, note the following with respect to state income taxes:

Estimated tax payments.
You can deduct estimated tax payments you made during the year to a state or local government. However, you must have a reasonable basis for making the estimated tax payments. Any estimated state or local tax payments that aren’t made in good faith at the time of payment aren’t deductible.

Example.

You made an estimated state income tax payment. However, the estimate of your state tax liability shows that you will get a refund of the full amount of your estimated payment. You had no reasonable basis to believe you had any additional liability for state income taxes and you can’t deduct the estimated tax payment.

So in the example above, it someone made a estimated state income tax payments in 2017 and their 2017 tax was so much lower that they got a huge refund refund then you can't deduct the estimated tax payment (or perhaps just the huge refund).... the advisory is same principle but applied to property taxes.

....I'll still bet that a lot of people claimed the deduction in previous years and it was accepted, even if it wasn't correct to do so. ...

There is a big difference between lack of detection and acceptance. IOW, if you did it and didn't get audited or questioned, it doesn't mean that it was accepted... it means that your non-compliance was not detected.

But it would not surprise me that there have been many instances in the past where non-compliance has not been detected.

 

[Travelfreek]

I paid $3500 today that was billed but not due till April '18. I called our mortgage company to get permission since our mortgage payments include impound account. They said to send them confirmation statement of paid prop tax and they'll deal with it (I imagine they will recalc our payment to accommodate the shortfall in what's needed to pay taxes and ins for remainder of '18.

The county we live in said I could only prepay amount billed which is half of our yearly prop tax. It would have been great if we could have paid the full $7000 yearly prop tax.

 

[walkinwood]

I wonder what the ruling means to us in Denver. We pay taxes in arrears. ie. we are billed for 2017 property taxes in early 2018.

I pre-paid this morning. If I can deduct great. If not, no big loss. I will not have enough deductions to itemize next year.

 

[ERD50]

From Publication 17: //NOTE: see the earlier post, I won't bother with cut/paste here//

If the town or county has not assessed the tax then it has not been imposed on you. .....

Thanks for the source. It looks like my son will be OK in Cook county. They were limited to a 1st installment pre-payment, which is 55% of the previous year's bill, and adjustments are made to the 2nd installment. So while there was griping about not being able to pay the whole thing, it looks like this is established before the end of the year, so apparently meets the requirement.

I'll add though, since this appears to be have been standard policy, it sure is amazing that given all the attention this has got (it's been all over the news here, people waiting in line to pay, extra hours from staff, last minute changes to allow more flexible payment options, etc), that the IRS didn;t come out with that statement right away, and make it clear that this is not "new" (many sites are reporting it that way).

And I'll go further, this is a bit of a rant, but we have the premise that "ignorance is no excuse" when it comes to obeying laws. Fine, I get the need for that. But I think it comes with a responsibility from our lawmakers - laws should be simple enough for everyone to understand. It appears that even many accountants were advising their clients to prepay, and were unaware of the specific requirements. The only way I can get away with ignorance of the law is to be declared insane or incompetent. So laws should be simple enough for the barely sane/competent to understand.

... There is a big difference between lack of detection and acceptance. IOW, if you did it and didn't get audited or questioned, it doesn't mean that it was accepted... it means that your non-compliance was not detected.

But it would not surprise me that there have been many instances in the past where non-compliance has not been detected.

I fully understand and agree. I've often been told by people, that they do this or that on their taxes, and have always done it that way. And I say that doesn't make it legal/right, though you may never get questioned on it.

I normally err on the side of being very conservative with my taxes. But on this one, I just might end up being confused, and claim it anyway. Seems the worst could happen is it get rejected and I have to pay. I don't think these payments are linked in the same way that, say a 1099 is. And I don't expect fines for such a confusing situation.

-ERD50

 

[sheehs1]

From what I remember after having read parts of the bill (a week ago) , the $10,000 tax deduction limit includes taxes paid such as property AND state income taxes. If this is correct, then I was always over the limit since I was able to deduct my state taxes paid on my Federal Return.

Am I reading this correctly or did the deduction for deducting state taxes as part of this bucket go away?

For property taxes, even with the new condo purchase I am below the $10,000. I am above the limit if state taxes are included in that.

I have always (the last 25 years anyway) had to pay Quarterly estimates for both Federal and State or was penalized. (meaning I had no choice!).

 

[Texas Proud]

As to being right and being accepted on a tax return..... I have had conversations with a number of people who do things not quite right and I say you are just playing audit roulette.... as long as you do not get caught then you are good...

If I were in a high tax state and prepaid 2018 I would deduct it and let them find it... but being in Texas I double up anyhow.. and do not want to pay 2018.... heck, I have not paid 2017 yet....