Prepaying Your Property Tax? I.R.S. Cautions it Might Not Pay Off #realestate #finance #investment

Source:  The New York Times

The Internal Revenue Service has a message for the homeowners rushing to prepay their property taxes:  Not so fast.

The tax bill that President Trump signed into law sharply limited the itemized deductions for state and local taxes while raising the standard deduction for individuals and couples.  The rules take effect this year (2018).  That has led some homeowners, particularly in high-tax affluent areas, to try to prepay their 2018 property taxes before the deduction disappears.

Making Sense of the Story:
- In an advisory notice posted to its website, 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.

- It is not clear how many people have tried to prepay their taxes.  In Fairfax, Va., hundreds of people lined up to prepay taxes on Tuesday, according to local media reports, and communities in New York, New Jersey and other states have likewise reported a rush of prepayments.

- The I.R.S. guidance is advice to taxpayers and tax-preparers, not a legal ruling.  And the agency did not define what it means for a tax to be "assessed."

- Property tax schedules vary widely from state to state and even county to county.  Some states have already sent out tax assessments for part of 2018, even if the payments are not due until next year.  In those states, tax lawyers said, homeowners who prepay taxes will almost certainly be able to deduct their taxes under the 2017 rules.

- Other states have not even begun the 2018 assessment process.  In those states, prepayment almost certainly will not help taxpayers.

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