For homeowners seeking to maximize their property-tax deduction before the Republican tax law takes effect in January, best to pay attention to your local tax departments.
Local authorities around the country provide property-tax bills on a widely varying timetable. In California, some counties have only billed for the first quarter of 2018. In New Jersey, some cities have sent homeowners property tax bills for the first two quarters. And in Suffolk County, N.Y., in Long Island full 2018 tax bills have already been sent.
Continue Reading Below
It matters because the Internal Revenue Service said in an advisory late Wednesday that only property taxes that have been assessed prior to 2018 are deductible on 2017 tax returns. State and local law determines when property taxes are assessed and those dates vary by location, the IRS said.
That could prove particularly problematic for places like Hoboken, N.J., and Fairfax County, Va., that have allowed prepayments before bills have been prepared. For instance, in Fairfax County, where hundreds lined up outside the local tax office this week to prepay next year's levy, county officials have yet to set the 2018 tax rate.
Duxbury, Mass., which has only accepted payments for February and May, has been dealing with residents who were trying to prepay their expected property taxes for the rest of the year even though the town hasn't billed for those dates yet.
Duxbury Treasurer-Collector Jill Stewart said Thursday that the town was still being "inundated" with early payers. "It's been historical -- the amount of people coming to pay taxes, trying to find money anywhere they can to try to reap the benefits of this deduction," she said.
The new tax bill signed into law on Dec. 22 caps the amount that tax filers can deduct in state and local income, sales and property taxes at $10,000, beginning next year. Many homeowners in high-tax states like New Jersey, Virginia and Massachusetts have been scrambling to prepay their 2018 property taxes before the end of the year in order to claim a full deduction on their 2017 tax return.
David Lifson, a certified public accountant with Crowe Horwath, said for homeowners to receive the deduction, the local government must have calculated the 2018 tax liability and the payment must have been made by the end of the year. Mr. Lifson said the IRS statement is consistent with the advice many tax advisers have been providing.
The confusion surrounding prepayment isn't likely to go away anytime soon, said Nicole Kaeding, an economist at the Tax Foundation.
"I don't think this is the end of this conversation. There's going to be a question on what is an assessment," she said. "Could a locality in the next several days issue some sort of blanket assessment that would meet the IRS's guidance?"
That question could be particularly relevant for Washington, D.C., which has completed its assessments for next year but won't send its first bills until the new year. The District's Office of the Chief Financial Officer on Thursday issued a notice saying residents could prepay and qualify for a deduction even though bills haven't been sent yet. It's unclear how the IRS considers such a situation.
Hoboken, N.J., has only issued tax bills for the first two quarters of 2018, though it notified residents that it would accept payments from homeowners who wished to pay more.
"The city is not issuing advice on whether property owners should pre-pay taxes, how much to pre-pay, or the possible tax impact, including whether the IRS will allow the payments to be deductible on 2017 federal income taxes," the city said in an advisory to residents.
When reached for comment Thursday, a spokesman for the city said: "Our position hasn't changed. We aren't giving legal advice."
On Thursday, Fairfax County spokesman Jeremy Lasich said the county hadn't billed property owners for next year's taxes. "We are still studying what the IRS guidance means since it came out late yesterday," he said.
The county has posted a note on its website saying it "makes no representation" about the deductibility of prepaid local property taxes from federal taxes.
Ms. Kaeding of the Tax Foundation said taxpayers there could be out of luck. "They've just provided Fairfax County with an interest-free loan," she said.
Complicating matters is that many homeowners pay their property taxes as part of their mortgages so they don't get a separate bill.
James Erdekian, a certified public accountant in Boston, said people who pay towns directly will need to notify their mortgage companies that they did so and show proof. Otherwise, mortgage companies could wind up sending payments as well, he said.
Elsewhere, communities were already only accepting payments for taxes that had already been billed.
Santa Clara County, in California, for instance, is accepting prepayment of an installment that is due in April. Property owners received this property-tax statement in October, the county said. "Any overpayment received" will be refunded to taxpayers, the county cautions on its website.
Sacramento County also was accepting property-tax payments for only as far out as April, said spokeswoman Kim Nava. Some people were hoping to pay property taxes that will be due beyond April, but the county wasn't accepting them, Ms. Nava said.
"People have asked if they can do that," she said. "Unfortunately, the answer is `no.' "
San Diego County was accepting the second installment of 2017-18 property taxes -- due in February, and was advising people not to try to send in more. "While you can pay the rest of this year's taxes now, please note that we can't accept any future property taxes," the county's Treasurer-Tax Collector Dan McAllister said in a statement last week.
That doesn't mean some eager taxpayers still won't run into problems -- and that communities won't be stuck having to return cash.
Outside Boston, Milton, Mass., was accepting payments for February and May bills, but some taxpayers were also submitting money for anticipated property-tax tabs for later in the year.
"Some people are trying to slip it in," said Milton Town Treasurer James McAuliffe. "We'll be cutting them a check. They may have an issue with the IRS later on down the line."
For places that have the 2018 bills ready, homeowners are jumping at the opportunity to maximize their deduction. Officials in Suffolk County N.Y., on Long Island said towns there have already sent out tax bills for the entire calendar year of 2018. A spokesman for the county said homeowners should be able to deduct their property 2018 property taxes on their 2017 tax return as long as they pay them before the end of the year.
"People are coming in droves" to pay, the Suffolk County spokesman said.
Write to Joseph De Avila at email@example.com, Jennifer Levitz at firstname.lastname@example.org and David Harrison at email@example.com
(END) Dow Jones Newswires
December 28, 2017 13:29 ET (18:29 GMT)