Confusion about prepaying property taxes

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Buffetologist
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Confusion about prepaying property taxes

Post by Buffetologist » Wed Dec 20, 2017 3:26 pm

I'm interested in continuing the discussion about prepaying property taxes. I'm getting mixed signals of what's allowed and what isn't.

Pub 17 says
"The following two tests must be met for you to deduct any tax.
The tax must be imposed on you.
You must pay the tax during your tax year."

Consider the 3 scenarios that I have

1) On my primary residence, the assessment for the 2017-2018 tax bill comes out on Tuesday Dec 26 with the Q3 payment due Feb 1 and the Q4 payment due May 1. Since these taxes have clearly been imposed in 2017, if I pay on Dec 26, 2017, they are deductible in 2017.

2) Since the assessment is done in December, my taxing authority knows exactly how much the Q1 (due Aug 1), and Q2 (due Nov 1) will be to the penny. They are willing to accept a prepayment of these taxes. However, the bills for Q1 and Q2 will not be issued until June 2018. When this tax is considered to be imposed seems key in determining if I can deduct it if I prepay in 2017. On the one hand, is it imposed if they can tell me the exact amount and willing to accept payment? Or, it is only considered imposed when they issue the bill. Not sure about this one.

3) On my second home, the final half of the 2017 property tax bill was due Dec 14. I prepaid my estimate of the 2018 property tax bill, and they accepted my payment and issued me a receipt. However they don't know the exact amount yet since property is assessed in the Spring. Has this tax been "imposed".

I'm curious what people think of the deductablity of items (1), (2) and (3).

Appreciate any responses.

Chip
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Re: Confusion about prepaying property taxes

Post by Chip » Wed Dec 20, 2017 4:29 pm

I would say that 1 and 2 are deductible. 3 is not.

There is a tax court case (or perhaps revenue ruling) where a property tax deduction wasn't allowed because the tax hadn't been assessed.

deltaneutral83
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Re: Confusion about prepaying property taxes

Post by deltaneutral83 » Wed Dec 20, 2017 4:34 pm

How about property taxes for 2018 that are billed totally in 2018 being deducted on 2017 taxes if you prepay 2018 before Dec 31, 2017?

RustyShackleford
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Re: Confusion about prepaying property taxes

Post by RustyShackleford » Wed Dec 20, 2017 5:24 pm

I'm foreseeing a big tax class-action suit (if there is such a thing in tax law), because I imagine a LOT of people will be prepaying their 2018 property taxes without meeting any reasonable definition of there having been "imposed" in 2017.

KATNYC
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Re: Confusion about prepaying property taxes

Post by KATNYC » Wed Dec 20, 2017 5:30 pm

We are having a similar issue since we pay real estate taxes through a monthly fee to our management company, not direct taxes.
We're in a NYC apartment complex.
The accountant said we cannot prepay since the management company pays the taxes on an accrual basis.
However, enough residents have inquired such that the Board has to meet to discuss a potential workaround.
I am not sure the management company can add 2018 payments made in 2017 to our 2017 1098.
Waiting to see. If they don't have an answer before the end of next week, we are going to prepay and hope they can figure it out.

ccieemeritus
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Re: Confusion about prepaying property taxes

Post by ccieemeritus » Wed Dec 20, 2017 5:36 pm

deltaneutral83 wrote:
Wed Dec 20, 2017 4:34 pm
How about property taxes for 2018 that are billed totally in 2018 being deducted on 2017 taxes if you prepay 2018 before Dec 31, 2017?
I've done this in prior years and just did it again today. I've already received a property tax bill due on 2/1/18. I just paid it. But the key point is I received the bill from the county during 2017.

Of course, it may not be helpful if I get hit with AMT, which (based on a preliminary run through turbotax) looks likely for 2017 but not certain.

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alpenglow
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Re: Confusion about prepaying property taxes

Post by alpenglow » Wed Dec 20, 2017 5:39 pm

My tax bill states, "Due Dec 1, 2017" but the first half is payable until Jan 15 and the second half is payable until May 15. I am paying the whole bill in Dec and I feel it should be deductible.

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alpenglow
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Re: Confusion about prepaying property taxes

Post by alpenglow » Wed Dec 20, 2017 5:41 pm

alpenglow wrote:
Wed Dec 20, 2017 5:39 pm
My tax bill states, "Due Dec 1, 2017" but the first half is payable until Jan 15 and the second half is payable until May 15. I am paying the whole bill in Dec and I feel it should be deductible.
Edit: MODS: I see some of these threads are getting locked. The main thread is very difficult to follow and is going in all directions. Is there a chance of keeping side threads open for ease of reading/conversation?

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Strider
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Re: Confusion about prepaying property taxes

Post by Strider » Wed Dec 20, 2017 5:55 pm

Does the wording of the tax-reform bill incorporate indexing of the $10K SALT limit for future inflation? Same question for indexing of the $24K standard deduction for future inflation.

Strider

P.S. Will also double-post this message in omnibus thread.

RustyShackleford
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Re: Confusion about prepaying property taxes

Post by RustyShackleford » Thu Dec 21, 2017 1:33 am

I'm copying part of a post from the big "Omnibus" thread, which I think is very relevant here, and also very discouraging for many of us ...

https://ustaxcourt.gov/InOpHistoric/HOFFMAN.TCM.WPD.pdf

“ Section 164(a)(1) allows a deduction for real property
taxes. Deduction of prepaid real property taxes has been
disallowed where a cash basis taxpayer failed to establish that
the prepayment represented assessed, rather than estimated,
taxes, and that such taxes were due in the year they were paid.
See Hradesky v. Commissioner, 540 F.2d 821 (5th Cir. 1976), affg.
per curiam 65 T.C. 87 (1975).”

Buffetologist
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Re: Confusion about prepaying property taxes

Post by Buffetologist » Thu Dec 21, 2017 5:33 am

Chip wrote:
Wed Dec 20, 2017 4:29 pm
I would say that 1 and 2 are deductible. 3 is not.

There is a tax court case (or perhaps revenue ruling) where a property tax deduction wasn't allowed because the tax hadn't been assessed.
Unfortunately I agree with you on (3). I didn't have time to get it straight before I paid it.

So your opinion on (2) is that if they can tell me the exact amount of Q1_2018 (due 8/1) and Q2_2018 (due 11/1) because it's based on the current Dec 2017 property value assessment, but it isn't billed until June 2018 it's still considered being "imposed" in 2017?

This is the source of my confusion.

Buffetologist
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Re: Confusion about prepaying property taxes

Post by Buffetologist » Thu Dec 21, 2017 5:37 am

RustyShackleford wrote:
Thu Dec 21, 2017 1:33 am
I'm copying part of a post from the big "Omnibus" thread, which I think is very relevant here, and also very discouraging for many of us ...

https://ustaxcourt.gov/InOpHistoric/HOFFMAN.TCM.WPD.pdf

“ Section 164(a)(1) allows a deduction for real property
taxes. Deduction of prepaid real property taxes has been
disallowed where a cash basis taxpayer failed to establish that
the prepayment represented assessed, rather than estimated,
taxes, and that such taxes were due in the year they were paid.
See Hradesky v. Commissioner, 540 F.2d 821 (5th Cir. 1976), affg.
per curiam 65 T.C. 87 (1975).”
Based on this, because the taxes in (2) are not on the Dec 2017 bill, it would seem that (2) would be disallowed because they are for FY2018.

I'm confused about the words "assessed", "imposed", "levied". We get a property assessment done in Dec 2017. The bill issued in December only has (1). They can however determine the amount that will be on the June 2018 bill.

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Rainier
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Re: Confusion about prepaying property taxes

Post by Rainier » Thu Dec 21, 2017 5:42 am

You can't take a deduction where there is no liability yet. Under old or new law.

If you prepay where there is no bill yet issued many towns will return your check as they cannot accept it.

Chip
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Re: Confusion about prepaying property taxes

Post by Chip » Thu Dec 21, 2017 6:15 am

Buffetologist wrote:
Thu Dec 21, 2017 5:33 am
So your opinion on (2) is that if they can tell me the exact amount of Q1_2018 (due 8/1) and Q2_2018 (due 11/1) because it's based on the current Dec 2017 property value assessment, but it isn't billed until June 2018 it's still considered being "imposed" in 2017?

This is the source of my confusion.
Believe it or not, there is some question in my mind on what the word "imposed" means in the IRS pubs. The way it is used in Pub 17 it seems to mean "applies to you" vs. "applies to someone else". The example given is about a spouse being unable to deduct property taxes paid on a house owned by the other spouse. This meaning is in contrast to what you're describing, which is "they've notified me of my immediate liability". See some discussion about this in another thread, starting here.

However, in a couple of threads MikeG62 has pointed out a tax court case that might, based on the wording, disallow any deduction for a property tax payment made in a year other than the year they were due. See one of his posts here. I'm not sure that interpretation applies, however, since I'm relatively certain if you paid your property taxes in a year AFTER they were due they would still be deductible in the year paid. It's confusing.

I'll throw one more thing in the mix. I've been bunching deductions for many years, prepaying property taxes as we're discussing every other year. My county will come up with the 2017 numbers next week, the last week of December. Bills for those taxes will normally go out in January and June, due in February and July. But if I go down to the tax office after they have the numbers, write them a check for the full 2017 amount, they will print out the exact bill I would have received in January and stamp it "Paid" with the date I hand them the check. I have always figured that was "good enough", though the tax court case has me wondering. But I will do it again this year.

Sorry I can't be more definitive. Think of it as a "feature" of the tax code. Not a bug. :D

Buffetologist
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Re: Confusion about prepaying property taxes

Post by Buffetologist » Thu Dec 21, 2017 6:38 am

Thanks for the replies.

I've been scouring articles
http://www.nextavenue.org/year-end-tax-moves-tax-bill/

They quote Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting.

“The IRS standard is that if you know what you owe, you can prepay,” says Luscombe

This would agree with chip (3) is not allowed. (1) is clearly allowed. Mr. Luscombe says (2) would be allowed too. The tax court case suggests that (2) may be disallowed.

I suspect that we're not going to get the definitive answer I was hoping for, but the whole country is going through this question.

I will save roughly $2800 in cash money doing (2) if it's allowed. I'm leaning toward trying it.

Clumsum
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Re: Confusion about prepaying property taxes

Post by Clumsum » Thu Dec 21, 2017 7:06 am

Just beware of the Alternate Minimum Tax. I was going to prepay before I ran the numbers.

MikeG62
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Re: Confusion about prepaying property taxes

Post by MikeG62 » Thu Dec 21, 2017 9:24 am

Chip wrote:
Thu Dec 21, 2017 6:15 am
Buffetologist wrote:
Thu Dec 21, 2017 5:33 am
So your opinion on (2) is that if they can tell me the exact amount of Q1_2018 (due 8/1) and Q2_2018 (due 11/1) because it's based on the current Dec 2017 property value assessment, but it isn't billed until June 2018 it's still considered being "imposed" in 2017?

This is the source of my confusion.
Believe it or not, there is some question in my mind on what the word "imposed" means in the IRS pubs. The way it is used in Pub 17 it seems to mean "applies to you" vs. "applies to someone else". The example given is about a spouse being unable to deduct property taxes paid on a house owned by the other spouse. This meaning is in contrast to what you're describing, which is "they've notified me of my immediate liability". See some discussion about this in another thread, starting here.

However, in a couple of threads MikeG62 has pointed out a tax court case that might, based on the wording, disallow any deduction for a property tax payment made in a year other than the year they were due. See one of his posts here. I'm not sure that interpretation applies, however, since I'm relatively certain if you paid your property taxes in a year AFTER they were due they would still be deductible in the year paid. It's confusing.

I'll throw one more thing in the mix. I've been bunching deductions for many years, prepaying property taxes as we're discussing every other year. My county will come up with the 2017 numbers next week, the last week of December. Bills for those taxes will normally go out in January and June, due in February and July. But if I go down to the tax office after they have the numbers, write them a check for the full 2017 amount, they will print out the exact bill I would have received in January and stamp it "Paid" with the date I hand them the check. I have always figured that was "good enough", though the tax court case has me wondering. But I will do it again this year.

Sorry I can't be more definitive. Think of it as a "feature" of the tax code. Not a bug. :D
MikeG62 here. IANAL, although I am a retired accountant (but not a tax accountant - was a financial accountant), for what this is worth (which may not be much when it comes to interpreting income tax rules and TC cases).

Just posted this in the omnibus thread on tax reform.

My concern is the language in the TC memo which says "...and such taxes were due in the year they were paid".

It would seem by definition a "prepayment" is not due when paid. It is due at some point in the future, but is being paid early.

A secondary issue is the language in the TC case which says, "taxpayer failed to establish that the prepayment represented assessed, rather than estimated, taxes..."

Chip, you raise an interesting point (paying real estate taxes in the year after they were due and deducting in the year paid). No doubt I'd rather defend that on audit than a clear case of prepaying. However, my view (again FWIW), is that paying late does not mean the amount was not due in the year paid. While it was past due, I doubt it would meet the same fate as the fact pattern in the TC case.

I just don't see how so many people see prepaying RE taxes is a slam dunk (zero risk of being disallowed on audit). It is true that so many people are doing it that maybe the IRS will take a "my bad" approach (i.e., congress should have come out with clear guidance prohibiting this like was done with state income taxes). However, I am not certain they will. I do think the prevalence of this practice would very likely mean no penalties if disallowed on audit.

By the way, I agree with your interpretation on the phrase "imposed upon you".

------------------------------------------------------------------------------------------------------
EDIT: (12/24/17)

Spoke with a buddy of mine a few days ago (was the former SVP Tax for a multinational company for 20+ years). He read the TC memo and we discussed this situation at length. His view is the determination of what payments are deductible and in what years is very facts and circumstances dependent. Municipalities have different processes and timelines for assessing taxes, different tax years, different methods and timelines for billing such taxes and when they expect those taxes to be paid. As such he would not rely on the words in this TC ruling as a "bright line test" for deductibility to apply to all situations. He pointed out that the taxpayer in this case was not only trying to deduct property tax payments in a year before they were due, but did not even have a tax assessment to support the payment.

He was of the view that if the property tax was assessed, you were in possession of a bill from the tax authority and the tax authority was willing to accept payment in 2017 and apply it to your tax liability, then you had a good set of facts on your side. Not guaranteed to pass audit, but a very low risk tax position.
Last edited by MikeG62 on Sun Dec 24, 2017 10:47 am, edited 1 time in total.
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furwut
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Re: Confusion about prepaying property taxes

Post by furwut » Thu Dec 21, 2017 10:59 am

A secondary issue is the language in the TC case which says, "taxpayer failed to establish that the prepayment represented assessed, rather than estimated, taxes..."
My locality assesses every March for the following year. The couple of times I prepaid I took the position that, with the assessment in hand, a tax was owed and therefore my prepayment was deductible.

Invoicing by the locality is a matter of convenience. It doesn’t create the tax obligation.

Tamales
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Re: Confusion about prepaying property taxes

Post by Tamales » Thu Dec 21, 2017 11:49 am

The people participating in this thread seem to already know that pre-paying their 2018 property taxes before 12/31/17 has a tax advantage.

Can someone please explain the necessary pre-conditions for someone to be looking into whether they can pre-pay 2018 property tax (ignoring whether it's allowed in your location)?

For example, should I be looking at my 2016 Schedule A entries in "taxes paid by you" to make this decision?
Link to 2016 Schedule A: https://www.irs.gov/pub/irs-pdf/f1040sa.pdf

MtnBiker
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Re: Confusion about prepaying property taxes

Post by MtnBiker » Thu Dec 21, 2017 12:39 pm

Chip wrote:
Thu Dec 21, 2017 6:15 am

I've been bunching deductions for many years, prepaying property taxes as we're discussing every other year. My county will come up with the 2017 numbers next week, the last week of December. Bills for those taxes will normally go out in January and June, due in February and July. But if I go down to the tax office after they have the numbers, write them a check for the full 2017 amount, they will print out the exact bill I would have received in January and stamp it "Paid" with the date I hand them the check. I have always figured that was "good enough", though the tax court case has me wondering. But I will do it again this year.
Those interested in prepaying property tax in 2017 are aware of the tax benefits of bunching payments in alternating years. If, for any reason, prepayment in 2017 is not guaranteed to provide an auditable tax benefit in your situation then why not take a longer term view and evaluate whether bunching into even years (starting with 2018) will provide a lesser but positive benefit?

I've been bunching deductions into alternate years, but never prepaying property taxes as discussed here. If necessary for bunching, I have paid late. Since 2017 is my year to take the standard deduction, I would have no benefit from prepaying this year. If I bunch charitable contributions into 2018 as planned, there may still be a tax benefit for itemizing in 2018.

My county issued the 2017 tax bill earlier this month. Payment for the first half was due yesterday, December 20, with the second half due in June of 2018. I wrote my first half payment check, including a trivial surcharge for penalties and interest, dated it January 1 and will have it postmarked on January 2, 2018.

Chip
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Re: Confusion about prepaying property taxes

Post by Chip » Thu Dec 21, 2017 12:53 pm

MtnBiker wrote:
Thu Dec 21, 2017 12:39 pm
Those interested in prepaying property tax in 2017 are aware of the tax benefits of bunching payments in alternating years. If, for any reason, prepayment in 2017 is not guaranteed to provide an auditable tax benefit in your situation then why not take a longer term view and evaluate whether bunching into even years (starting with 2018) will provide a lesser but positive benefit?

I've been bunching deductions into alternate years, but never prepaying property taxes as discussed here. If necessary for bunching, I have paid late. Since 2017 is my year to take the standard deduction, I would have no benefit from prepaying this year. If I bunch charitable contributions into 2018 as planned, there may still be a tax benefit for itemizing in 2018.

My county issued the 2017 tax bill earlier this month. Payment for the first half was due yesterday, December 20, with the second half due in June of 2018. I wrote my first half payment check, including a trivial surcharge for penalties and interest, dated it January 1 and will have it postmarked on January 2, 2018.
Personally, I won't be itemizing for the forseeable future. So it's 2017 or not at all.

Penalties & interest for late payments vary by jurisdiction. I would bet it's not "trivial" everywhere. In my county it's a 10% penalty if more than 10 days late. It goes up from there.

Voland
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Re: Confusion about prepaying property taxes

Post by Voland » Thu Dec 21, 2017 2:01 pm

furwut wrote:
Thu Dec 21, 2017 10:59 am
A secondary issue is the language in the TC case which says, "taxpayer failed to establish that the prepayment represented assessed, rather than estimated, taxes..."
My locality assesses every March for the following year. The couple of times I prepaid I took the position that, with the assessment in hand, a tax was owed and therefore my prepayment was deductible.

Invoicing by the locality is a matter of convenience. It doesn’t create the tax obligation.
If I understand correctly I'm in the same boat. My municipality assesses taxes the following year they're supposed to be taxed. 2016 tax bill came out in March 2017, and 2017 tax bill will come out in a few months in 2018. Technically I'm not invoiced, but I still owe the tax bill. Would that make any difference if I'll be able to prepay my 2017 tax bill that will be invoiced in 2018?

NorCalDad
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Re: Confusion about prepaying property taxes

Post by NorCalDad » Thu Dec 21, 2017 2:10 pm

Tamales wrote:
Thu Dec 21, 2017 11:49 am
The people participating in this thread seem to already know that pre-paying their 2018 property taxes before 12/31/17 has a tax advantage.

Can someone please explain the necessary pre-conditions for someone to be looking into whether they can pre-pay 2018 property tax (ignoring whether it's allowed in your location)?

For example, should I be looking at my 2016 Schedule A entries in "taxes paid by you" to make this decision?
Link to 2016 Schedule A: https://www.irs.gov/pub/irs-pdf/f1040sa.pdf
The "Taxes You Paid" section will be capped at $10,000 total for the 2018 tax year. If you will exceed $10,000 in 2018, it will probably be advantageous for you to accelerate your property tax payment.

Mr.Wu
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Re: Confusion about prepaying property taxes

Post by Mr.Wu » Thu Dec 21, 2017 9:01 pm

RustyShackleford wrote:
Thu Dec 21, 2017 1:33 am
I'm copying part of a post from the big "Omnibus" thread, which I think is very relevant here, and also very discouraging for many of us ...

https://ustaxcourt.gov/InOpHistoric/HOFFMAN.TCM.WPD.pdf

“ Section 164(a)(1) allows a deduction for real property
taxes. Deduction of prepaid real property taxes has been
disallowed where a cash basis taxpayer failed to establish that
the prepayment represented assessed, rather than estimated,
taxes, and that such taxes were due in the year they were paid.
See Hradesky v. Commissioner, 540 F.2d 821 (5th Cir. 1976), affg.
per curiam 65 T.C. 87 (1975).”
So the prepaid tax can be deducted for this year only if it was due this year? My 2018 1st and 2nd quarter tax has been billed but due in 2018. Does that mean I can not pay it now and deduct it for 2017 tax...........

dowse
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Re: Confusion about prepaying property taxes

Post by dowse » Sun Dec 24, 2017 10:27 am

Buffetologist wrote:
Thu Dec 21, 2017 6:38 am
Thanks for the replies.

I've been scouring articles
http://www.nextavenue.org/year-end-tax-moves-tax-bill/

They quote Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting.

“The IRS standard is that if you know what you owe, you can prepay,” says Luscombe

This would agree with chip (3) is not allowed. (1) is clearly allowed. Mr. Luscombe says (2) would be allowed too. The tax court case suggests that (2) may be disallowed.

I suspect that we're not going to get the definitive answer I was hoping for, but the whole country is going through this question.

I will save roughly $2800 in cash money doing (2) if it's allowed. I'm leaning toward trying it.
Thanks for starting this thread. The facts for my situation are very similar. My primary home is subject to July 1- June 30 fiscal year. I have already paid two quarterly bills due Aug. 1 and Nov. 1. Next bill would normally be sent out in Jan. with due date Feb.1. Final bill due date would be May 1. However, the town has provided me with the next invoice (online) showing assessed taxes for the fiscal year. The date on the invoice is Jan 1, 2018. The invoice says "Assessed as of January 1, 2017". Not sure if this refers only to assessed value. The exact amounts for the remaining two quarters are known, and the town is accepting payment for them, but not beyond that.

Similar to your #3, the tax year for my second home is subject to a tax year of April 1 through March 31. The taxes for the current tax year have already been billed and paid. I just found out that the town has been authorized to accept up to two years of prepayments. However, since there will be no new tax rate established until next April, invoices cannot be produced. Therefore, I think this one will not be allowed.

Like you, I think the best approach is for me to prepay for my primary home as that seems like a low risk. For the second home, however, I see it as a high risk and not worth the hassle of juggling finances around to fund it.

MikeG62
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Re: Confusion about prepaying property taxes

Post by MikeG62 » Sun Dec 24, 2017 10:54 am

Mr.Wu wrote:
Thu Dec 21, 2017 9:01 pm
RustyShackleford wrote:
Thu Dec 21, 2017 1:33 am
I'm copying part of a post from the big "Omnibus" thread, which I think is very relevant here, and also very discouraging for many of us ...

https://ustaxcourt.gov/InOpHistoric/HOFFMAN.TCM.WPD.pdf

“ Section 164(a)(1) allows a deduction for real property
taxes. Deduction of prepaid real property taxes has been
disallowed where a cash basis taxpayer failed to establish that
the prepayment represented assessed, rather than estimated,
taxes, and that such taxes were due in the year they were paid.
See Hradesky v. Commissioner, 540 F.2d 821 (5th Cir. 1976), affg.
per curiam 65 T.C. 87 (1975).”
So the prepaid tax can be deducted for this year only if it was due this year? My 2018 1st and 2nd quarter tax has been billed but due in 2018. Does that mean I can not pay it now and deduct it for 2017 tax...........
No I do not think it means that (and I have raised this TC ruling many times before). See edit added to my earlier post added this morning.

These folks were trying to deduct payments for taxes were not even assessed and for which they had no bill or payment voucher in hand. You have an assessment and bills (payment vouchers) in hand. The fact that your town allows you to spread the payments over time without penalty, if not paid by the date on the voucher, does not necessarily mean that the tax is not due when assessed. It may just may be more akin interest free financing.

Plus, you can't read anything about preparing for the new tax law that does not suggest "prepaying" property taxes. By definition, a "prepayment" is paying something before it is due. If the IRS were to take such a draconian a view on the meaning of the words "when due", surely we would not see this suggested in so many places by so many people. In addition, some folks who prepaid in the past would and lost the deduction on audit would have come out of the woodwork by now telling their story.
Last edited by MikeG62 on Sun Dec 24, 2017 12:10 pm, edited 1 time in total.
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pshonore
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Re: Confusion about prepaying property taxes

Post by pshonore » Sun Dec 24, 2017 11:10 am

I think if the assessment was made AND the mill rate was set, you have a valid case for paying and taking the deduction. My house gets re-assessed every five years but of course the mill rate gets set every year. I doubt I could make a case for paying 5 years in advance (assuming they would even take it) just because the assessment was made.

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tfb
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Re: Confusion about prepaying property taxes

Post by tfb » Sun Dec 24, 2017 1:38 pm

pshonore wrote:
Sun Dec 24, 2017 11:10 am
I think if the assessment was made AND the mill rate was set, you have a valid case for paying and taking the deduction. My house gets re-assessed every five years but of course the mill rate gets set every year. I doubt I could make a case for paying 5 years in advance (assuming they would even take it) just because the assessment was made.
Exactly. We need to distinguish between assessing the value of the property and assessing the tax. Just having an assessment of the property value doesn't create a tax liability on you yet. By the time they assess the tax, you may not be the owner any more. They will assess the tax on the new owner.
Harry Sit, taking a break from the forums.

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Mlm
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Re: Confusion about prepaying property taxes

Post by Mlm » Sun Dec 24, 2017 2:20 pm

For the New Yorkers

Announcement from : https://www.tax.ny.gov

Governor Andrew M. Cuomo has signed an emergency Executive Order that will allow New Yorkers to prepay next year’s property taxes this year, before the new tax law takes effect. Payments must be postmarked on or before December 31, 2017. For more information, contact the tax receiver for your county.

The order authorizes localities to issue warrants for the collection of early property tax payments and to accept partial payment—allowing New Yorkers to pay a portion or all of their 2018 property taxes before the end of the year to keep the deductibility.
Reality has a way of catching up with you

Small Law Survivor
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Re: Confusion about prepaying property taxes

Post by Small Law Survivor » Mon Dec 25, 2017 11:28 am

Chip wrote:
Thu Dec 21, 2017 12:53 pm
Personally, I won't be itemizing for the forseeable future. So it's 2017 or not at all.
Ditto ....

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tfb
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Re: Confusion about prepaying property taxes

Post by tfb » Mon Dec 25, 2017 11:36 am

Mlm wrote:
Sun Dec 24, 2017 2:20 pm
For the New Yorkers

Announcement from : https://www.tax.ny.gov

Governor Andrew M. Cuomo has signed an emergency Executive Order that will allow New Yorkers to prepay next year’s property taxes this year, before the new tax law takes effect. Payments must be postmarked on or before December 31, 2017. For more information, contact the tax receiver for your county.

The order authorizes localities to issue warrants for the collection of early property tax payments and to accept partial payment—allowing New Yorkers to pay a portion or all of their 2018 property taxes before the end of the year to keep the deductibility.
This is misleading. Governor Cuomo does not determine federal tax deductibility. They will accept your prepayments. Whether you are able to deduct or not is a whole separate question.
Harry Sit, taking a break from the forums.

pshonore
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Re: Confusion about prepaying property taxes

Post by pshonore » Mon Dec 25, 2017 12:02 pm

tfb wrote:
Mon Dec 25, 2017 11:36 am
Mlm wrote:
Sun Dec 24, 2017 2:20 pm
For the New Yorkers

Announcement from : https://www.tax.ny.gov

Governor Andrew M. Cuomo has signed an emergency Executive Order that will allow New Yorkers to prepay next year’s property taxes this year, before the new tax law takes effect. Payments must be postmarked on or before December 31, 2017. For more information, contact the tax receiver for your county.

The order authorizes localities to issue warrants for the collection of early property tax payments and to accept partial payment—allowing New Yorkers to pay a portion or all of their 2018 property taxes before the end of the year to keep the deductibility.
This is misleading. Governor Cuomo does not determine federal tax deductibility. They will accept your prepayments. Whether you are able to deduct or not is a whole separate question.
Good point - I wonder many how local tax collectors will get those warrants issued by Friday and better those mail payments no later than early Sat morning on the 30th as there very little mail pickup on Sundays. On the other hand, outside of this board, the vast majority have no idea. I know its in the newspaper as well but my experience is very few read newspapers anymore.

libralibra
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Re: Confusion about prepaying property taxes

Post by libralibra » Mon Dec 25, 2017 12:12 pm

tfb wrote:
Mon Dec 25, 2017 11:36 am
This is misleading. Governor Cuomo does not determine federal tax deductibility. They will accept your prepayments. Whether you are able to deduct or not is a whole separate question.
At the very least it looks pretty shady. I wonder how many NYers even itemize and who benefits overall. We're not talking middle or low income here.

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CardinalRule
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Re: Confusion about prepaying property taxes

Post by CardinalRule » Mon Dec 25, 2017 2:18 pm

True, and it will be interesting to see what the IRS ends up doing with these. But without the Executive Order, it would have been game over for the prepayments as a 2017 deduction.
tfb wrote:
Mon Dec 25, 2017 11:36 am
Mlm wrote:
Sun Dec 24, 2017 2:20 pm
For the New Yorkers

Announcement from : https://www.tax.ny.gov

Governor Andrew M. Cuomo has signed an emergency Executive Order that will allow New Yorkers to prepay next year’s property taxes this year, before the new tax law takes effect. Payments must be postmarked on or before December 31, 2017. For more information, contact the tax receiver for your county.

The order authorizes localities to issue warrants for the collection of early property tax payments and to accept partial payment—allowing New Yorkers to pay a portion or all of their 2018 property taxes before the end of the year to keep the deductibility.
This is misleading. Governor Cuomo does not determine federal tax deductibility. They will accept your prepayments. Whether you are able to deduct or not is a whole separate question.

URSnshn
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Re: Confusion about prepaying property taxes

Post by URSnshn » Mon Dec 25, 2017 3:02 pm

So, if I read this thread correctly, the consensus for NY'ers is to pay your property taxes early if the you receive a bill (and it looks like it will be for many), BUT it may not be allowed by IRS. If you pay early you haven't lost anything if you will fall under the standard deduction in 2018.

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Re: Confusion about prepaying property taxes

Post by Bongleur » Mon Dec 25, 2017 7:48 pm

Geeze. Instead of agonizing over unknowable answers, just pay anything & everything NOW before it is too late, and have your tax guy sort it out later.
Seeking Iso-Elasticity. | Tax Loss Harvesting is an Asset Class. | A well-planned presentation creates a sense of urgency. If the prospect fails to act now, he will risk a loss of some sort.

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Re: Confusion about prepaying property taxes

Post by stratton » Mon Dec 25, 2017 8:10 pm

You CAN'T prepay property tax in Washington state.

King County: Don’t prepay your property taxes now to avoid tax hit next year
But Washington state bars counties from collecting tax payments until the full tax roll is certified, which isn’t expected to happen until January.
Link in the quote is to the "Revised Code of Washington" (RCW).

Our property tax system is complicated since we don't have an income tax. From the same article.
The local property tax system is convoluted — it’s not just a matter of multiplying last year’s rate by your new assessed value. There are new and changing tax rates, caps on how much governments can charge, several government agencies all collecting pieces of the tax pie, utilities that cross county lines, and new construction that helps spread the total tax burden across more properties.

Stober said the assessor is still waiting on all the local and state agencies to send their budgets and construction totals before it can calculate everyone’s bill.
My property tax has something like 60+ components according to a past article I'm not quoting here.

Paul
...and then Buffy staked Edward. The end.

RootSki
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Re: Confusion about prepaying property taxes

Post by RootSki » Mon Dec 25, 2017 8:12 pm

Bongleur wrote:
Mon Dec 25, 2017 7:48 pm
Geeze. Instead of agonizing over unknowable answers, just pay anything & everything NOW before it is too late, and have your tax guy sort it out later.
Thread winner. :idea: :beer

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Re: Confusion about prepaying property taxes

Post by dodecahedron » Mon Dec 25, 2017 8:12 pm

pshonore wrote:
Mon Dec 25, 2017 12:02 pm
Good point - I wonder many how local tax collectors will get those warrants issued by Friday and better those mail payments no later than early Sat morning on the 30th as there very little mail pickup on Sundays. On the other hand, outside of this board, the vast majority have no idea. I know its in the newspaper as well but my experience is very few read newspapers anymore.
I think this is all over the TV stations, and folks are Facebook sharing, but even before this year, lots of folks in my small town in upstate NY were routinely taking advantage of this, even without any special publicity.

For many years, the Receiver of Taxes in my small town (population approximately 20,000) has printed up and mailed out bills a few days before Dec 31. They may not always arrive in people's mailboxes before the last business day of December (particularly when 12/31 falls on a weekend), but tax-savvy folk know that they can just show up at town hall on the last couple of business days of the old year and her staff will happily print out a duplicate bill so they can date-stamp the bill PAID if the taxpayers want to do this.

In the past, I have sometimes found this helpful for deduction-bunching (alternating with standard deduction) and it is clear from my conversations with the Tax Receiver's staff that I am far from alone in doing this. (Of course, I will say that I live in a very smart, highly educated, and generally savvy town. Lots of scientists and engineers here. Also one of the co-authors of The Millionaire Next Door lives here.)

Incentives for paying early are greater than usual this year. I predict there will be lines of folks at the Receiver's office this week.

Edited to add: Also, the tax pro email lists are buzzing up about this news. Those in a position to benefit the most (i.e., high income folks with lots of SALT deductions) are likely to have proactive tax pros who will alert them to this opportunity if it is appropriate for them. (Due to 2017 AMT considerations, it may or may not be worth rushing to prepay.)

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Re: Confusion about prepaying property taxes

Post by Mr.Wu » Mon Dec 25, 2017 9:08 pm

MikeG62 wrote:
Sun Dec 24, 2017 10:54 am
Mr.Wu wrote:
Thu Dec 21, 2017 9:01 pm
RustyShackleford wrote:
Thu Dec 21, 2017 1:33 am
I'm copying part of a post from the big "Omnibus" thread, which I think is very relevant here, and also very discouraging for many of us ...

https://ustaxcourt.gov/InOpHistoric/HOFFMAN.TCM.WPD.pdf

“ Section 164(a)(1) allows a deduction for real property
taxes. Deduction of prepaid real property taxes has been
disallowed where a cash basis taxpayer failed to establish that
the prepayment represented assessed, rather than estimated,
taxes, and that such taxes were due in the year they were paid.
See Hradesky v. Commissioner, 540 F.2d 821 (5th Cir. 1976), affg.
per curiam 65 T.C. 87 (1975).”
So the prepaid tax can be deducted for this year only if it was due this year? My 2018 1st and 2nd quarter tax has been billed but due in 2018. Does that mean I can not pay it now and deduct it for 2017 tax...........
No I do not think it means that (and I have raised this TC ruling many times before). See edit added to my earlier post added this morning.

These folks were trying to deduct payments for taxes were not even assessed and for which they had no bill or payment voucher in hand. You have an assessment and bills (payment vouchers) in hand. The fact that your town allows you to spread the payments over time without penalty, if not paid by the date on the voucher, does not necessarily mean that the tax is not due when assessed. It may just may be more akin interest free financing.

Plus, you can't read anything about preparing for the new tax law that does not suggest "prepaying" property taxes. By definition, a "prepayment" is paying something before it is due. If the IRS were to take such a draconian a view on the meaning of the words "when due", surely we would not see this suggested in so many places by so many people. In addition, some folks who prepaid in the past would and lost the deduction on audit would have come out of the woodwork by now telling their story.
Thanks Mike. I have always blindly trusted the escrow to pay property tax and never dealt with it myself, your comments made me a lot more comfortable. My accessed value remains unchanged and each year the township has a new tax rate to set the tax for the second half of this year and the first half of next year. Although on the bill it says something like "2017 final / 2018 preliminary", the "preliminary" amount will be what people pay. I believe that means my tax has been assessed and due as it's already billed. Thanks again.

BTW the township even allows prepayment of tax not billed yet, that's apparently not due in my opinion.

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Re: Confusion about prepaying property taxes

Post by newkidontheblock » Tue Dec 26, 2017 8:10 am

We live in hennepin county in MN.
Last year we did itemize our deductions so we were about to deduct $37000 for state and local taxes.
I am not even sure we will itemize this year due to $10000 cap.

We currently escrow our property taxes. Our lender does allow us to cancel our escrow account.
We received our estimated property tax for 2018 in November.
I checked hennepin count website and they had this statement.

Prepay your 2018 property taxes
If you would like to prepay your 2018 property taxes, you may pay up to the amount stated in your proposed property tax (Truth in taxation) notice sent in November.
See the 2018 pre-payment method section of this page for instructions on making pre-payment.

I am not sure if they have added this statement after tax law changed or if they say this every year.
They do accept online property tax payments.

Our accountant has gone dark as he may to super busy. I am trying to determine if it is worth it for us to cancel our escrow and prepay property taxes.

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Re: Confusion about prepaying property taxes

Post by mwm158 » Wed Dec 27, 2017 2:02 am

.....
Last edited by mwm158 on Sat Jan 20, 2018 3:45 pm, edited 1 time in total.

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Re: Confusion about prepaying property taxes

Post by mrc » Wed Dec 27, 2017 7:51 am

My county enacted legislation during an emergency session yesterday. If you checked to see whether your jurisdiction accepts prepayments before, and they did not, you may want to check again. A few are making last-minute changes.

We'll save ~30% of the tax bill by deducting '18 state/local taxes on this year's return, thanks to the change.
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Re: Confusion about prepaying property taxes

Post by bob1234 » Wed Dec 27, 2017 10:47 am

My mom's county allows prepaying an estimate for 2018 property taxes, even though there isn't a final bill ready. It sounds like that is not deductible, but I'm thinking of prepaying anyway just in case the IRS provides clarification and allows it. She will most likely take the standard deduction in 2018, but just in case she itemizes, I was wondering - if she is unable to take the deduction in 2017, would she also be unable to take it in 2018 since it was paid in 2017?

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Re: Confusion about prepaying property taxes

Post by URSnshn » Wed Dec 27, 2017 12:48 pm

I think the best strategy is to consult your tax accountant on this. After talking with mine - I'm thinking twice. I do not think it is a no-brainer to simply pay property taxes ahead of time - the IRS may well rule in a way that doesn't make this - in the end - as satisfactory as may sound right now for a variety of reasons.

I think prepaying taxes is a gamble. It may or may not pay off - no one will know until next year.

RetiredCSProf
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Re: Confusion about prepaying property taxes

Post by RetiredCSProf » Wed Dec 27, 2017 1:18 pm

Los Angeles County, CA -- property owners can prepay the 2nd installment of the 2017-2018 property tax; here's the official announcement:
http://lacountypropertytax.com/portal/p ... nt2017.pdf

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Re: Confusion about prepaying property taxes

Post by Small Law Survivor » Wed Dec 27, 2017 3:00 pm

Just got back from the treasurer/assessor's office in my town, where it's the rare person that doesn't itemize.

People were lining up to prepay property taxes. I pre-paid the two payments that would have been due in the first half of 2018 - these are part of the 2017-18 fiscal year, so that seemed low risk.

However, the conversation around the treasurer's counter (the people behind me in line, and the people behind the counter) was that people were paying not only first half of 2018, but all of 2018-19 - all four payments. I got the impression that people WERE going to deduct the 2018-19 payments. One guy said that he had discussed this w/his accountant, and he had been advised that this was legitimate.

I'm inclined to prepay the two tax payments that will be due in the second half of next year, but I'm wondering - if I deduct these payment, what are the chances I'll be audited? And second, if I am and the deductions are disallowed, what will the consequences be?

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Re: Confusion about prepaying property taxes

Post by mrc » Wed Dec 27, 2017 3:19 pm

Small Law Survivor wrote:
Wed Dec 27, 2017 3:00 pm
Just got back from the treasurer/assessor's office in my town, where it's the rare person that doesn't itemize.

People were lining up to prepay property taxes. I pre-paid the two payments that would have been due in the first half of 2018 - these are part of the 2017-18 fiscal year, so that seemed low risk.

However, the conversation around the treasurer's counter (the people behind me in line, and the people behind the counter) was that people were paying not only first half of 2018, but all of 2018-19 - all four payments. I got the impression that people WERE going to deduct the 2018-19 payments. One guy said that he had discussed this w/his accountant, and he had been advised that this was legitimate.

I'm inclined to prepay the two tax payments that will be due in the second half of next year, but I'm wondering - if I deduct these payment, what are the chances I'll be audited? And second, if I am and the deductions are disallowed, what will the consequences be?
Hoping someone can say whether how to handle these prepayment property tax deductions lies solely with the IRS, or if Congress must/could pass a "fix" to the bill to make it clear one way or the other. I don't know what would happen if the IRS disallows these deductions, but you sure as heck won't be alone. 8-)
People often hate what they fear

pshonore
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Re: Confusion about prepaying property taxes

Post by pshonore » Wed Dec 27, 2017 3:21 pm

It depends. If the IRS suspects widespread tax "misconduct", its not hard to pick out returns where Property tax payments OR Income tax payments are significantly greater than the previous year and ask for further documentation. They could refine that by ignoring returns where the bulk of state income tax was paid by withholding on W2 forms to greatly narrow the population. I doubt such review will happen but one never knows.

A few years back the IRS matched 1098 Mtg Interest forms to returns and found several thousand 1098 forms showing mortgage interest paid of more than 10K with no matching tax returns for the SS#. I can think of some situations where that could happen but not that many. I do not know what, if any, enforcement action was taken.

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Re: Confusion about prepaying property taxes

Post by furwut » Wed Dec 27, 2017 5:45 pm

Looks like the IRS may be taking the hard line in allowing prepayment.
The IRS said that taxpayers can claim an additional property tax deduction when paying their 2017 taxes if they pay the tax this year and if the local tax authority has notified homeowners prior to 2018 of how much they owe in property taxes, known as a tax assessment. State and local laws vary as to when this occurs.
IRS says taxpayers trying to use deduction that will be scaled back can prepay 2018 property taxes only under limited circumstances - The Washington Post

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