IRS Statement Re: Prepaid Property Tax

Yesterday, the IRS issued this statement with regard to the tax deductibility of prepaid property tax.  In it, they state that the property tax must be both assessed and paid in 2017 in order to be deductible in 2017.  The statement is just a reminder/clarification, not a new rule.  It follows with what I wrote in my last post about prepaying property taxes…  “Be aware though that in most cases, if the county accepts the prepayment as a deposit placed in an escrow account, it is not considered “paid” for Federal tax purposes.  It has to be paid against a levied tax to be deductible.”  If there is no tax yet, then your county could just be putting your prepayment in a suspense or escrow account and that is definitely not deductible.  If your tax has not yet been assessed, then there is no tax bill to prepay and that means your situation is the same as the 2nd example in the IRS statement.  Clearly not deductible.  If the tax was already assessed and payment isn’t due until sometime in 2018, or if they are taking your payment, levying a tax to offset it, and applying the payment against a levied tax (with amount not finalized, but known to be at least as much as last year), then that should be deductible.  I highly doubt many counties are going through that level of trouble though.  Most likely, either the tax has already been assessed and you’ve been notified of it, in which case payment would be deductible if make by 12/31/2017, or the tax has not been assessed and is not deductible for 2017, regardless of when it is paid.

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