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IRS Sharply Limits Local Moves to Recognize Property Tax Prepayments in 2017

December 29, 2017

 

 The IRS issued an advisory (IR-2017-210) late this afternoon with regard to the pre-payment of property taxes. In the advisory, the IRS moved to substantially limit the ability to pre-pay 2018 property taxes.

 

What is still payable for 2018 and thus deductible in 2017. For property taxes already assessed for the 2017-2018 tax year, second payments due in 2018 can be paid in 2017 and deducted. We note that this was always true, regardless of the actions of the Montgomery County Council.

 

What is not payable for 2018 and thus not deductible in 2017. Pre-paying property taxes for 2018 that have yet not been assessed (such as that for the 2018-2019 budget year), cannot be pre-paid and deducted in 2017. In our view this is a change to the prevailing interpretation of the relevant statutes, where cash basis taxpayers could deduct expenses paid in the tax year being filed, regardless of the actual useful life of those expenses (depreciable items being the exception). It is possible that litigation may roll back this new interpretation, but unless you have a significant amount of money riding on property taxes and are willing to appose the IRS over it, we recommend to adhere to their advisory until new guidance is issued. Unfortunately this may be well after December 31st, in which case the issue will be moot.

 

With regard to Maryland's recent notice on property tax assessments. Maryland has sent out new assessments to properties in Group 3 as of December 28th. These are valuation assessments, not tax assessments, and thus are not what the IRS is referring to when they speak of the date of assessment. The county or local jurisdiction must declare a tax assessment during 2017 for the pre-payment to qualify for 2017 deduction.

 

Still have questions? Contact us at inquiry@njcpaccounting.com or call us at 301-841-0209.

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