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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Pre-Paying Property Taxes

For those of you who are looking into making extra property tax payments in 2017 per this previous post in an attempt to make payments deductible in 2017 that would may not be deductible for 2018, I compiled a list of relevant (to my clients) states and their policies on prepayment.  In some states, even if the official property tax bill(s) for calendar year 2018 haven’t been published, they will accept pre-payment.  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.   This information is posted for reference only and is not a substitute for communicating directly with your tax collector and/or a CPA, EA, or tax attorney.  Use it as a guide to get started, not as the law.  Here’s what I’ve found so far:

California: taxes are managed at the county level but it appears that for all counties payment #2 for fiscal 2018 is due in early 2018 (payment #1 was due in late 2017).  These bills have been published and the amounts are known.  If you want to make a pre-payment, simply pay your 2nd payment prior to 1/1/2018.

Georgia:  taxes are managed at the county level.  For Dekalb and Cobb counties, there is no mention of prepayment of taxes for 2018 on their websites.  They just collected 2017 taxes in the Fall of 2017, so there is no assessment nor bill for 2018 yet.  However, they may still accept a payment for 2018.  Call the county tax office for details.  For Fulton county, due to issues I don’t fully understand, their 2017 tax bills were issued later than usual.  Residents in the City of Atlanta have a due date of Dec. 31, while residents in Fulton County have a due date of Jan. 15, 2018.  Pay by 12/31/2017 if you want the payment to count for 2017’s Federal taxes.  For 2018 pre-payments, again, call your county tax office.

Illinois: taxes are managed at the county level.  In Cook county, taxes are paid in arrears.  2016 taxes were paid in 2017.  2017 taxes are due 55% on 3/1/2018 and 45% on 8/1/18.  The county website indicates that they are now accepting prepayments for the 3/1/2018 portion, but makes no mention of the 8/1/2018 installment.  Call your tax collector for more detail if you’re interested in paying beyond the first installment.

Maryland – taxes are managed at the county level.  For Baltimore County, tax payments are divided into two installments.  The first installment is due on July 1 of the tax year and may be paid without interest on or before September 30 of the tax year. The second installment is due on December 1 of the tax year and may be paid without interest on or before December 31 of the tax year.  So, all tax bills for 2017 should be paid by end of calendar 2017.  I haven’t found any information about pre-paying 2018 taxes in Baltimore County, but Howard county just announced that it is accepting pre-payments for 2018 and will hold those payments in escrow until bills are generated.  I expect other counties to follow suit.  Contact your tax collector for more details.  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” until they accept it against an levied tax, so you may still not get a deduction for it.

Michigan – taxes are managed at the county / city level.  For Detroit and the rest of Wayne county, tax bills are divided into two installments.  The first is due 8/15 and the second is due 1/15 of the following year.  You can make your 1/15 payment by 12/31 for it to count toward 2017 Federal taxes.  I haven’t found any information about pre-paying 2018 taxes so call your county tax collector to inquire.

Minnesota:  taxes are managed at the county level, but at least for Hennipen county, they are accepting prepayments based on the amount stated in your proposed property tax (Truth in taxation ) notice sent in November 2017.  Payments must be received (not postmarked) by the county by 12/29/17 to process for 2017 and they may be made in person or by mail.  Other counties probably have similar policies so check with your county tax collector if you want to pre-pay.  For Hennepin County, see their website for more info.

New Jersey: the annual property tax bill is due 25% each quarter on 2/1, 5/1, 8/1, and 11/1.  I believe you should already know the 2/1/18 and 5/1/18 payment amounts so those could easily be prepaid by 12/31/2017 if you want them to count for 2017 Federal tax.  I have no information about pre-paying beyond 5/1/18.  Call the county tax office for more info.

New York: there are two types of tax bills each year: 1) School and 2) Municipal and County.  School tax bills are typically mailed in Sep each year, with due date varying by district.  Municipal/County bills are typically mailed in Jan each year, with due date varying by locale.  If your School tax bill hasn’t been paid yet, you can definitely due that by 12/31/2017 if you want it to count toward 2017 Federal tax.  For the Municipal/County bill, call your tax office and ask if they can give you the amount that will be on the January 2018 bill and if you’re allowed to pay it by 12/31/2017.  There is no mention on state websites I looked at about pre-paying Municipal/County taxes for the following year.  That would be taxes not due until 2019 so I doubt that would be allowed, but check with your county tax office to inquire.

Update 12/23 – per Jeff Levine, CPA via Twitter: ” Interesting… NY’s Governor Cuomo has signed an executive order allowing the early payment of 2018 property in order to help New Yorkers impacted by the ‘s new SALT restrictions

North Carolina: taxes are managed at the county level.  I checked Mecklenberg and Union counties and both show due dates for 2017 tax of September 2017, but no interest will be due if paid by 1/5/2018.  If you want your 2017 tax payment to count for 2017 Federal tax, pay by 12/31/2017.  For 2018 prepayments, policy seems to vary by county but I was able to verify that both Mecklenburg and Union counties are accepting pre-payments by check with parcel number and “prepayment” noted on the check.  Incidentally, I’m writing this at 3pm on 12/21 and Mecklenburg County issued their policy at about 2:30pm on 12/21.

Pennsylvania – taxes are managed at the county / city level and the procedures vary greatly by municipality.  In Philadelphia tax bills are mailed in December for the following year and are due in March.  So you can definitely pay 2018 property tax bills in 2017 if you make payment by 12/31/2017.  In Delaware County, bills are mailed 2/1 and are payable at a slight discount through 4/1, full amount through 6/1, and with a 10% penalty through 12/31.  Call your tax collector to inquire about prepaying the following year’s taxes if you wish to do so.

South Dakota – Property tax bills are divided into two payments.  The first half of the property tax payments are accepted until April 30th without penalty. The second half of taxes will be accepted until October 31st without penalty.  So 2017 taxes have already been paid.  I haven’t found any information about pre-paying 2018 taxes so call your property tax collector to inquire.

Texas: 2017 property taxes are due 1/31/2018.  If you want them to count as a deduction for 2017 Federal tax, pay them by 12/31/2017.  There is no mention on state websites I looked at about pre-paying 2018 taxes.  That would be taxes not due until 2019 so I doubt that would be allowed, but check with your county tax office to inquire.

Virgina – taxes are managed at the county level.  Most counties seem to have tax due in two installments during the calendar year.  The counties I researched, including Fairfield County appear to be accepting prepayments of 2018 property taxes.  They need to be paid (not postmarked) by 12/26 to be credited as paid in calendar 2017.

Washington: 2017 tax bills have already been paid.  It is against state law for county tax collectors to accept payments for 2018 taxes during calendar 2017 per the Kings County website.

Calling your city/county tax collector and specifically asking if they will accept prepayment (and by what method) is the best way to get an accurate answer.  Many counties still appear to be figuring this out, so there’s a lot of changing / stale information out there.

Remember, if you’re in AMT for 2017 already, without the additional payment, then this will not help you.  But, the only way it hurts you is if the 2018 tax law changes again and would have made the payment deductible in 2018 (seems like a low probability), if your state/local income/property tax deductions would be less than $10k in 2018 (meaning you could have deducted the property taxes in 2018 instead), or if it’s tying up money you otherwise need for something else, leading you to take on debt or make other inefficient financial decisions.  So, if you can pre-pay your 2018 property taxes, unless you know for sure that it won’t help you to do so, you can consider doing it.