IR-2017-210, Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017:
The Internal Revenue Service advised tax professionals and taxpayers today that pre-paying 2018 state and local real property taxes in 2017 may be tax deductible under certain circumstances.
The IRS has received a number of questions from the tax community concerning the deductibility of prepaid real property taxes. In general, 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. State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.
The following examples illustrate these points.
Example 1: Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018. On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018. Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.
Example 2: County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 – June 30, 2018. County B intends to make the usual assessment in July 2018 for the period July 1, 2018 – June 30, 2019. However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year. Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018.
Victor Thuronyi, Can You Prepay 2018 Property Tax in 2017?:
It turns out this question get[s] more complex by the day. ...
[T]his is not just about taxpayers rushing to save some tax by year-end maneuvers. Whether it is the taxpayers who make the prepayments or the ones who see others making them and wondering whether they should have done this or why this was not handled in a better way, this issue should help cement in peoples’ minds that the 2017 tax act was not just bad policy (giveaways to the wealthy) but poorly made policy. The two are interconnected, because the secretive and rushed way that the policy was made facilitated making policy that benefited the wealthy campaign donors of Republican politicians, their wealthy friends, and the wealthy Republican politicians themselves.
Wall Street Journal, Looking to Prepay Property Taxes? Check Local Timetables First:
The Internal Revenue Service sparked last-minute confusion over the eligibility of property-tax prepayments, making local governments scramble Thursday to interpret the IRS notice with just days left in the year.
Homeowners in high-tax states rushed this week to prepay their property taxes to deduct them from their 2017 federal taxes before the new tax law takes effect in January. The Republican tax legislation signed by President Donald Trump on Dec. 22 caps the amount of state and local tax deductions to $10,000, which could reduce the tax benefits of homeownership.
The IRS poured cold water on their efforts in an advisory late Wednesday that said only people whose local governments had completed 2018 property assessments could prepay their real-estate taxes and claim the full amount from federal taxes before the cap kicks in.
New York Times, Prepaying Your Property Tax? I.R.S. Cautions It Might Not Pay Off:
The Internal Revenue Service has a message for the homeowners rushing to prepay their property taxes before new rules take effect on New Year’s Day: Not so fast.
The tax bill that President Trump signed into law last week sharply limited the itemized deductions for state and local taxes while raising the standard deduction for individuals and couples. Those rules do not take effect until 2018, however. That has led some homeowners, particularly in high-tax, affluent areas, to try to prepay their 2018 property taxes before the deduction disappears.
In an advisory notice posted to its website on Wednesday, the I.R.S. said that maneuver could work, but only under limited circumstances. To qualify for the deduction, property taxes not only need to be paid in 2017, they must also be assessed in 2017 — meaning that homeowners who prepaid their taxes based on estimated assessments, or who tried to pay several years’ worth of taxes at once, will probably be out of luck.