2018 Property tax prepayments not deductible - The IRS officially hates me

[The White Coat Investor]

A week late and $3700 short, the IRS has decided that I just loaned Salt Lake County $3700 interest-free for 11 months.

https://www.irs.gov/newsroom/irs-advisory-prepaid-real-property-taxes-may-be-deductible-in-2017-if-assessed-and-paid-in-2017

If you haven't already pre-paid 2018 property taxes, don't bother.

[G]

I saw that.  Who could have imagined there'd be a lot of moving parts/consequences to a little piece of legislation like this?  As far as I can tell, the IRS has no legal foundation for this, but it's not worth fighting over a couple hundred bucks.

Besides, technically, I prepaid before they let out their Imperial Decree, so I'm considering myself grandfathered.  And...sometimes honest mistakes happen....

[Bmac]

But if your jurisdiction accepts 2018 property tax payments, doesn’t that mean that they have been assessed? In Washington State we cannot prepay, so moot for us. But I would think in order to be able to pay any property taxes they would first have to be assessed. How else would you know how much to pay?

[VagabondMD]

Bmac wrote:

But if your jurisdiction accepts 2018 property tax payments, doesn’t that mean that they have been assessed? In Washington State we cannot prepay, so moot for us. But I would think in order to be able to pay any property taxes they would first have to be assessed. How else would you know how much to pay?

Click to expand...

We paid yesterday, just a few hours before I read the missive from the IRS. I guess my wife wasted a couple of hours, and we also gave our taxing authority an interest free pre-payment of slightly north of $10,000. The upside was potentially a $4000 tax savings this year, worth the trade-off of losing the 1.5% interest over the course of nearly a year (less than $100).

[Hatton]

I decided not to bother since in Alabama my property tax is only $1600. My state tax plus property tax equals around $10k.

[spiritrider]

G wrote:

I saw that.  Who could have imagined there’d be a lot of moving parts/consequences to a little piece of legislation like this?  As far as I can tell, the IRS has no legal foundation for this, but it’s not worth fighting over a couple hundred bucks.

Besides, technically, I prepaid before they let out their Imperial Decree, so I’m considering myself grandfathered.  And…sometimes honest mistakes happen….

Click to expand...

This is not new guidance. This has nothing to do with the recent tax reform. People bunching deductions have had to deal with these rules for many years. The IRS' has legal authority to enforce the IRC, write regulations and issue guidance.

You could take this to the tax court ... oh wait the tax court has already ruled on this, hence the rules. So, no, you are not grandfathered, this was in effect before you prepaid.

You are perfectly entitled to give your community an interest free loan, you just can't deduct it. Especially, since you have been given explicit guidance of the circumstances where it is and where it isn't allowed before the end of the tax year, let alone when you file.

Some communities have announced that they may try to find a way to refund advanced payments for those who want them.

[ajagannathan]

What about those of us that pay property tax in arrears?  I just prepaid my 2017 bill, I would imagine that is still deductible or am I wrong about that?

[jz]

In IL, we pay in arrears.  Our 2017 property taxes are assessed, but not rated.  Thus our ***(prepayment of in arrears payments) for 2017 will be included in our 2017 schedule A deductions.  Assessment done Aug 2017.  Ratings done in April or May 2018.  This info by phone to two county treasurer offices.

 

***love that phrase.

[treesrock]

Bummer, saw this in the news yesterday, of course right AFTER I went to the county office and pre-paid my property taxes.  Looks like an interest free loan for my local government as well.  Awesome.

On a bright note for me, I bought a new car this year, and the county office realized they never billed me for my property taxes in 2017 and were planning on lumping them all together first half 2018, so at least I got that paid and will deduct that (a whopping 328 dollars).

[Phoenixdown99]

I decided to pay it anyway because my income will go up significantly in 2018 and I was worried I might be more likely to get hit by AMT in 2018 (227k in 2017 (77k 1099 +150k W2) vs likely 300k+ (all W2) in 2018, although with the changes in AMT I am reading about on this forum, I am now just confused.

[PhysicianOnFIRE]

Michigan has both winter and summer property taxes, and we got bills for the winter bill, due in March of 2018 in November or December and promptly paid them. We should be able to deduct those since we were billed and didn't "pre-pay."

Our primary home in MN is billed in the spring and fall -- I didn't try to pre-pay those based on mixed information I was reading.

[StarTrekDoc]

From my NPR marketplace session - It depends on whether a bill has been assessed by the county or not.  If no stated bill;  it's an interest free loan like WCI said.   If you have a real bill; you're still good.

SOL Fairfax.   Cali 'wins' this round.  We know how to tax our citizens.

[orthodds]

We are in arrears here as well.  I paid a large amount toward 2016 and 2017 property taxes.  How can the IRS disallow this?  I'm not paying anything toward 2018 tax assessment property taxes.

[GXA]

We are also in arrears, however I do not believe the actual assessment occurs for the year prior until Feb or March (so 2017 assessment occurs in Feb or March of 2018).

It is interesting though as our county does currently have posted estimated property taxes due in May 2018.  When I called them last week about prepayment, they recommended using the estimated amount, as prepayments are why they post it in 2017.

[EMscout]

So many of us (you) end up paying the AMT and this last minute rush to prepay is more often than not irrelevant and potentially harmful. Do your homework first and sit with the AMT tax form and calculate it out before burning your time and money during these last few days of 2017.