WASHINGTON (Via News) – As a way to circumvent a new cap on federal tax deductions, homeowners across the United States are rushing to prepay their property taxes.
According to Fortune.com, homeowners are attempting to pay their 2017 and 2018 property taxes in advance since the new tax cap takes effect Jan. 1, 2018.
Hundreds of people in line at the Fairfax Govt Center. They'll be prepaying their property tax, since the new tax law caps property tax deductions at $10k. pic.twitter.com/Z4sKUoIBnh
— Neal Augenstein (@AugensteinWTOP) December 26, 2017
The nonpartisan Tax Foundation said homeowners in Nassau, Rockland, and Westchester counties in New York have the highest average property tax bills with a median annual tax liability of more than $10,000, according to Fortune.
But, some counties are unable to accept advance payment of property taxes. In New York, Gov. Andrew Cuomo signed an executive order allowing residents to make partial payments, but in Westchester County, officials said: “it is just not possible for the county to issue its 2018 tax warrants to localities within the next four days for a whole host of legal, operational and practical reasons.”
The reason for the rush is because the Internal Revenue Service said last week homeowners can deduct their prepaid 2018 property taxes on their 2017 returns. This could only happen if state law allowed those property taxes to be assessed before the end of 2017. Therefore, Cuomo issued his executive order.
“You are damned right,” Cuomo said, according to The Hill. “This is now red vs. blue. They are using New York, California and the other blue states to finance the tax cuts in red states.”
The IRS said, on its website, it has received “a number of questions” regarding deducting prepaid 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.”
The new tax law, which President Donald Trump signed into law last week, caps property tax deductions on federal income taxes at $10,000. It also cut corporate tax rates from 35 percent to 21 percent and included a temporary reduction of taxes for individuals.
Washington, D.C. suburb Montgomery County, Maryland, was one county that did not allow advance payment. However, the day after Christmas, county councilmembers broke from their Christmas break to hold an emergency meeting and voted 7-1 to allow advance payment.
“There are so many moving pieces that even now that it has passed, we’re not in a position to assure our residents that these payments are going to be deductible,” County Councilman George Leventhal told CNN Money.
In the end, it will be the Internal Revenue Service who will have the final say-so on whether prepaid property taxes will be allowed.
Here are two examples provided by the IRS regarding property tax deductions:
“Example 1: Assume County A assesses property tax 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 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 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.”