CNBC quotes IRS on terms of deductibility of prepaid property taxes

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frostydrink
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CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by frostydrink » Wed Dec 27, 2017 5:21 pm

CNBC just posted a story about the conditions under which 2018 prepaid property taxes can be deducted:

https://www.cnbc.com/2017/12/27/irs-say ... -2017.html

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by Seia » Wed Dec 27, 2017 5:24 pm

https://www.irs.gov/newsroom/irs-adviso ... id-in-2017

IR-2017-210, Dec. 27, 2017

WASHINGTON - The Internal Revenue Service advised tax professionals and taxpayers today that pre-paying 2018 state and local real property taxes in 2017 may be tax deductible under certain circumstances.

The IRS has received a number of questions from the tax community concerning the deductibility of prepaid real property taxes. In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017. State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.

The following examples illustrate these points.

Example 1: Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018. On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018. Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.

Example 2: County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 – June 30, 2018. County B intends to make the usual assessment in July 2018 for the period July 1, 2018 – June 30, 2019. However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year. Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018.

The IRS reminds taxpayers that a number of provisions remain available this week that could affect 2017 tax bills. Time remains to make charitable donations. See IR-17-191 for more information. The deadline to make contributions for individual retirement accounts - which can be used by some taxpayers on 2017 tax returns - is the April 2018 tax deadline.

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IRS clarifies 2018 property tax prepayment

Post by cykj » Wed Dec 27, 2017 5:54 pm

LINK: https://www.washingtonpost.com/news/bus ... 90a456ed84

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.

Great - I just paid the estimate this morning

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Re: IRS clarifies 2018 property tax prepayment

Post by ejvyas » Wed Dec 27, 2017 5:58 pm

Done :sharebeer

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Re: IRS clarifies 2018 property tax prepayment

Post by Smilodon » Wed Dec 27, 2017 6:29 pm

Official statement from IRS:

IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017

This clarifies the issue for me at least. All I have is a proposed property tax statement for 2018, so even though my county is accepting prepayment (with reports of long lines at the county offices :shock: ), the prepayment amount would not be deductible on my 2017 taxes. I think many folks are assuming that if the taxing authority accepts prepayment of 2018 property taxes in 2017, then they can be deducted on 2017 taxes. Only true under certain conditions, and having just a proposed or estimated property tax statement is not one of them.

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Re: IRS clarifies 2018 property tax prepayment

Post by delamer » Wed Dec 27, 2017 6:55 pm

My county fits example #2 in the link perfectly. So no joy for us, as the British say.

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Re: IRS clarifies 2018 property tax prepayment

Post by Buffetologist » Wed Dec 27, 2017 7:09 pm

Still doesn't address my case in Massachusetts where the property assessments, which is the valuations, is done once a year in December.

Though we have a fiscal year from July 1 to June 30, the amount of each of the 8/1/18 (Q1) and 11/1/18 (Q2) bill is exactly the total amount of the the December 2017 assessment divided by 4.

Though the 8/1 and 11/1 payments are invoiced in June, nothing that happens between the December assessment and the June invoice can change the amount.

I have prepaid the whole year hoping I can deduct it all with the logic that the December 2017 assessment "imposes" the tax, rather than the June 2018 invoice.

Billionaire
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Re: IRS clarifies 2018 property tax prepayment

Post by Billionaire » Wed Dec 27, 2017 7:13 pm

A couple of months ago I created a 2017 estimate using Turbo Tax 2016 software. As a test, I added $8,000.00 to my real estate taxes paid and the result was that the federal tax liability was unchanged. My MD state liability improved. The culprit was AMT. I'm not prepaying.

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by triceratop » Wed Dec 27, 2017 7:16 pm

I merged cykj's thread into this previous one (the system sorts by time).
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Re: IRS clarifies 2018 property tax prepayment

Post by The Wizard » Wed Dec 27, 2017 7:18 pm

Buffetologist wrote:
Wed Dec 27, 2017 7:09 pm
Still doesn't address my case in Massachusetts where the property assessments, which is the valuations, is done once a year in December.

Though we have a fiscal year from July 1 to June 30, the amount of each of the 8/1/18 (Q1) and 11/1/18 (Q2) bill is exactly the total amount of the the December 2017 assessment divided by 4.

Though the 8/1 and 11/1 payments are invoiced in June, nothing that happens between the December assessment and the June invoice can change the amount.

I have prepaid the whole year hoping I can deduct it all with the logic that the December 2017 assessment "imposes" the tax, rather than the June 2018 invoice.
You may be on thin ice.
I just paid my 2/1/18 and 5/1/18 Q3 and Q4 payments for fiscal year 2018 for which I have a paper bill. The tax rate and bill for fiscal 2019 7/1/18 to 6/30/19 won't be known and issued for quite a while.
Good luck...
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Re: IRS clarifies 2018 property tax prepayment

Post by Cunobelinus » Wed Dec 27, 2017 7:26 pm

delamer wrote:
Wed Dec 27, 2017 6:55 pm
My county fits example #2 in the link perfectly. So no joy for us, as the British say.
Americans say that too. It's aviator jargon, at least in the military, and has spread beyond just the aviators.

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Re: IRS clarifies 2018 property tax prepayment

Post by delamer » Wed Dec 27, 2017 7:36 pm

Cunobelinus wrote:
Wed Dec 27, 2017 7:26 pm
delamer wrote:
Wed Dec 27, 2017 6:55 pm
My county fits example #2 in the link perfectly. So no joy for us, as the British say.
Americans say that too. It's aviator jargon, at least in the military, and has spread beyond just the aviators.
Interesting — I have never heard an American say it, but then I guess that I have met way less than 1% of everyone living in the USA, so my sample is very small.

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Re: IRS clarifies 2018 property tax prepayment

Post by triceratop » Wed Dec 27, 2017 7:44 pm

delamer wrote:
Wed Dec 27, 2017 7:36 pm
Cunobelinus wrote:
Wed Dec 27, 2017 7:26 pm
delamer wrote:
Wed Dec 27, 2017 6:55 pm
My county fits example #2 in the link perfectly. So no joy for us, as the British say.
Americans say that too. It's aviator jargon, at least in the military, and has spread beyond just the aviators.
Interesting — I have never heard an American say it, but then I guess that I have met way less than 1% of everyone living in the USA, so my sample is very small.
It's because the Brits "fly" more than the US, if you know what I mean. :wink: It's why there's a thing called the USA. :twisted:
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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by Mr.Wu » Wed Dec 27, 2017 7:46 pm

My situation fits perfectly in example 1. So that's a done deal for me.

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Re: IRS clarifies 2018 property tax prepayment

Post by moshe » Wed Dec 27, 2017 7:48 pm

The Wizard wrote:
Wed Dec 27, 2017 7:18 pm
Buffetologist wrote:
Wed Dec 27, 2017 7:09 pm
Still doesn't address my case in Massachusetts where the property assessments, which is the valuations, is done once a year in December.

Though we have a fiscal year from July 1 to June 30, the amount of each of the 8/1/18 (Q1) and 11/1/18 (Q2) bill is exactly the total amount of the the December 2017 assessment divided by 4.

Though the 8/1 and 11/1 payments are invoiced in June, nothing that happens between the December assessment and the June invoice can change the amount.

I have prepaid the whole year hoping I can deduct it all with the logic that the December 2017 assessment "imposes" the tax, rather than the June 2018 invoice.
You may be on thin ice.
I just paid my 2/1/18 and 5/1/18 Q3 and Q4 payments for fiscal year 2018 for which I have a paper bill. The tax rate and bill for fiscal 2019 7/1/18 to 6/30/19 won't be known and issued for quite a while.
Good luck...
Hi,

I just spoke with my MA based CPA and he suggested asking for a copy of the 2018 "actual" RE bill assessment from town(city) hall before you prepay in 2017. If they won't give you the actual bill assessment for whatever reason then the deduct-ability of the prepayment might be in question.

Like all "free" information verify with your own tax advisor before taking or not taking any actions.

~Moshe
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Re: IRS clarifies 2018 property tax prepayment

Post by jebmke » Wed Dec 27, 2017 9:08 pm

Buffetologist wrote:
Wed Dec 27, 2017 7:09 pm
Still doesn't address my case in Massachusetts where the property assessments, which is the valuations, is done once a year in December.

Though we have a fiscal year from July 1 to June 30, the amount of each of the 8/1/18 (Q1) and 11/1/18 (Q2) bill is exactly the total amount of the the December 2017 assessment divided by 4.

Though the 8/1 and 11/1 payments are invoiced in June, nothing that happens between the December assessment and the June invoice can change the amount.

I have prepaid the whole year hoping I can deduct it all with the logic that the December 2017 assessment "imposes" the tax, rather than the June 2018 invoice.
if the rate isn't set you don't have a known liability. In my county they can move the assessments all they want but with a revenue cap that isn't known yet, they don't have any rates set.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: IRS clarifies 2018 property tax prepayment

Post by Buffetologist » Wed Dec 27, 2017 9:50 pm

jebmke wrote:
Wed Dec 27, 2017 9:08 pm
Buffetologist wrote:
Wed Dec 27, 2017 7:09 pm
Still doesn't address my case in Massachusetts where the property assessments, which is the valuations, is done once a year in December.

Though we have a fiscal year from July 1 to June 30, the amount of each of the 8/1/18 (Q1) and 11/1/18 (Q2) bill is exactly the total amount of the the December 2017 assessment divided by 4.

Though the 8/1 and 11/1 payments are invoiced in June, nothing that happens between the December assessment and the June invoice can change the amount.

I have prepaid the whole year hoping I can deduct it all with the logic that the December 2017 assessment "imposes" the tax, rather than the June 2018 invoice.
if the rate isn't set you don't have a known liability. In my county they can move the assessments all they want but with a revenue cap that isn't known yet, they don't have any rates set.
The rate isn't set until December 2018. The town collects preliminary bills for 8/1 and 11/1 which are just the previous year's tax divided by 4. They make it up in Q3 (2/1/19) and Q4 (5/1/19) once the December 2018 assessment is done. In other words, the town knows today exactly what the 8/1/18 and 11/1/18 bills are now because they are based solely on the December 2017 assessment.

Because of Massachusetts proposition 2 1/2, the town does all of the property assessments in December, then raises the taxes imposed on existing construction 2.5% in aggregate, then divides by the actual property values to determine the new rate. This won't happen again until December 2018.

The question hinges on whether a tax is "imposed" by the December 2017 assessment or the June 2018 invoice. I don't think it's crystal clear, and the IRS statement doesn't clarify it.

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Re: IRS clarifies 2018 property tax prepayment

Post by tfb » Wed Dec 27, 2017 10:14 pm

Buffetologist wrote:
Wed Dec 27, 2017 9:50 pm
The rate isn't set until December 2018. The town collects preliminary bills for 8/1 and 11/1 which are just the previous year's tax divided by 4. They make it up in Q3 (2/1/19) and Q4 (5/1/19) once the December 2018 assessment is done. In other words, the town knows today exactly what the 8/1/18 and 11/1/18 bills are now because they are based solely on the December 2017 assessment.

Because of Massachusetts proposition 2 1/2, the town does all of the property assessments in December, then raises the taxes imposed on existing construction 2.5% in aggregate, then divides by the actual property values to determine the new rate. This won't happen again until December 2018.

The question hinges on whether a tax is "imposed" by the December 2017 assessment or the June 2018 invoice. I don't think it's crystal clear, and the IRS statement doesn't clarify it.
It is crystal clear that the 8/1/2018 and 11/1/2018 payments are themselves prepayments for taxes yet to be assessed in December 2018. They are deductible in 2018.
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Re: IRS clarifies 2018 property tax prepayment

Post by BW1985 » Wed Dec 27, 2017 10:38 pm

cykj wrote:
Wed Dec 27, 2017 5:54 pm
LINK: https://www.washingtonpost.com/news/bus ... 90a456ed84

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.

Great - I just paid the estimate this morning
Smilodon wrote:
Wed Dec 27, 2017 6:29 pm
Official statement from IRS:

IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017

This clarifies the issue for me at least. All I have is a proposed property tax statement for 2018, so even though my county is accepting prepayment (with reports of long lines at the county offices :shock: ), the prepayment amount would not be deductible on my 2017 taxes. I think many folks are assuming that if the taxing authority accepts prepayment of 2018 property taxes in 2017, then they can be deducted on 2017 taxes. Only true under certain conditions, and having just a proposed or estimated property tax statement is not one of them.
These two pieces seem to conflict..
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Buffetologist
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Re: IRS clarifies 2018 property tax prepayment

Post by Buffetologist » Thu Dec 28, 2017 6:58 am

tfb wrote:
Wed Dec 27, 2017 10:14 pm
Buffetologist wrote:
Wed Dec 27, 2017 9:50 pm
The rate isn't set until December 2018. The town collects preliminary bills for 8/1 and 11/1 which are just the previous year's tax divided by 4. They make it up in Q3 (2/1/19) and Q4 (5/1/19) once the December 2018 assessment is done. In other words, the town knows today exactly what the 8/1/18 and 11/1/18 bills are now because they are based solely on the December 2017 assessment.

Because of Massachusetts proposition 2 1/2, the town does all of the property assessments in December, then raises the taxes imposed on existing construction 2.5% in aggregate, then divides by the actual property values to determine the new rate. This won't happen again until December 2018.

The question hinges on whether a tax is "imposed" by the December 2017 assessment or the June 2018 invoice. I don't think it's crystal clear, and the IRS statement doesn't clarify it.
It is crystal clear that the 8/1/2018 and 11/1/2018 payments are themselves prepayments for taxes yet to be assessed in December 2018. They are deductible in 2018.
That is a sensible viewpoint I hadn't considered before and perhaps is correct. Since the entire state of Massachusetts has the July 1- June 30 fiscal year, I suspect that this will be discussed at length before the taxes are due. However, some towns don't do their assessments until January, and in towns in which that were the case, the 8/1 and 11/1 payments would always be assessed in the year after they were paid, which would mean that they were NEVER deductible even if paid by a mortgage escrow. I don't think that is correct.

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Re: IRS clarifies 2018 property tax prepayment

Post by MikeG62 » Thu Dec 28, 2017 8:03 am

Buffetologist wrote:
Thu Dec 28, 2017 6:58 am
tfb wrote:
Wed Dec 27, 2017 10:14 pm
Buffetologist wrote:
Wed Dec 27, 2017 9:50 pm
The rate isn't set until December 2018. The town collects preliminary bills for 8/1 and 11/1 which are just the previous year's tax divided by 4. They make it up in Q3 (2/1/19) and Q4 (5/1/19) once the December 2018 assessment is done. In other words, the town knows today exactly what the 8/1/18 and 11/1/18 bills are now because they are based solely on the December 2017 assessment.

Because of Massachusetts proposition 2 1/2, the town does all of the property assessments in December, then raises the taxes imposed on existing construction 2.5% in aggregate, then divides by the actual property values to determine the new rate. This won't happen again until December 2018.

The question hinges on whether a tax is "imposed" by the December 2017 assessment or the June 2018 invoice. I don't think it's crystal clear, and the IRS statement doesn't clarify it.
It is crystal clear that the 8/1/2018 and 11/1/2018 payments are themselves prepayments for taxes yet to be assessed in December 2018. They are deductible in 2018.
That is a sensible viewpoint I hadn't considered before and perhaps is correct. Since the entire state of Massachusetts has the July 1- June 30 fiscal year, I suspect that this will be discussed at length before the taxes are due. However, some towns don't do their assessments until January, and in towns in which that were the case, the 8/1 and 11/1 payments would always be assessed in the year after they were paid, which would mean that they were NEVER deductible even if paid by a mortgage escrow. I don't think that is correct.
FWIW, I agree with Buffetologist. In addition, there is this language in the newly released IRS guidance:

"In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017. State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.

So if Buffetologist has a tax bill in hand, pays that bill prior to Jan 1 and his/her township accepts the payment as settlement of the tax liability and not a deposit, I think this fits the IRS guidance and should be deductible. After all, how is this taxpayer not liable for the tax imposed? The fact that there is a true-up mechanism in the following year would not appear to make the taxpayer not liable for the amounts already billed. At the very least, it would seem worth taking the position that it is deductible and defending to the IRS on audit (in the very, very unlikely event that even becomes necessary) - I would.
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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by mwm158 » Thu Dec 28, 2017 8:16 am

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

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by panhead » Thu Dec 28, 2017 8:43 am

I'm in Mass and prepaid my property tax only to determine that I also am in AMT land so it was pointless. So, if I've paid them in 2017 but I don't deduct them in 2017, can I still deduct them in 2018 if it is useful?

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by Chip » Thu Dec 28, 2017 8:52 am

panhead wrote:
Thu Dec 28, 2017 8:43 am
I'm in Mass and prepaid my property tax only to determine that I also am in AMT land so it was pointless. So, if I've paid them in 2017 but I don't deduct them in 2017, can I still deduct them in 2018 if it is useful?
No. You're a cash basis taxpayer. You can only deduct taxes in the year you pay them, assuming they are otherwise deductible.

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by panhead » Thu Dec 28, 2017 8:54 am

Chip wrote:
Thu Dec 28, 2017 8:52 am
panhead wrote:
Thu Dec 28, 2017 8:43 am
I'm in Mass and prepaid my property tax only to determine that I also am in AMT land so it was pointless. So, if I've paid them in 2017 but I don't deduct them in 2017, can I still deduct them in 2018 if it is useful?
No. You're a cash basis taxpayer. You can only deduct taxes in the year you pay them, assuming they are otherwise deductible.
Thanks for the info. It is unlikely I will be able to deduct them in 2018 either, so it's not a big deal.

Another warning for people to check if they will be AMT land before prepaying. It's not a big deal for me, but it has no benefit either.

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by Leesbro63 » Thu Dec 28, 2017 9:12 am

If you have the money, wouldn't it make sense to make the prepayment? There's a reasonable chance that the guidelines will get challenged. And because this is a one time thing, the IRS might decide to back off. There is no "setting a precedent value" to the IRS. And by issuing the guidelines now, it will scare off many people from doing prepayment, which might be their goal. So there will only be a small handful (relative) who are at issue who actually did the prepayment without an official tax bill or tax assessment by 12/31/17 for 2018.

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by corn18 » Thu Dec 28, 2017 9:15 am

My county completed their assessment on 21 Dec 2017 (for 2017 taxes due, we pay one year in arrears). I have the online assessment but no bill yet. I will deduct the prepaid taxes and the online assessment will be my documentation.

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by Chip » Thu Dec 28, 2017 9:26 am

corn18 wrote:
Thu Dec 28, 2017 9:15 am
My county completed their assessment on 21 Dec 2017 (for 2017 taxes due, we pay one year in arrears). I have the online assessment but no bill yet. I will deduct the prepaid taxes and the online assessment will be my documentation.
My situation is nearly identical. County completed assessment for 2017 taxes on 12/26. I paid those taxes at the tax office yesterday and received as a receipt the bill I would have received in January, stamped "Paid 12/27/17".

Given the recent IRS guidance there is no way in heck I would attempt to deduct payment of an estimate.

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by Gopherrube1 » Thu Dec 28, 2017 9:27 am

I live in Hennepin County (Minnesota), and they sent out a "Proposed Levies and Taxes" statement back in November which relates to proposed 2018 property taxes. It specifically says, "This is not a bill - Do not pay".

Hennepin County has since come out and said, "If you would like to prepay your 2018 property taxes, you may pay up to the amount stated in your proposed property tax notice sent in November." So, this has caused many to go and prepay 2018 property taxes like many are doing around the country based on the proposed tax amount.

However, the actual property tax statement doesn't come out until March 2018 (with payments due in May and October), which I assume is when the property tax is "assessed". Am I correct in thinking that I wouldn't be able to deduct any prepaid property taxes given these facts?

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by corn18 » Thu Dec 28, 2017 9:33 am

Chip wrote:
Thu Dec 28, 2017 9:26 am
corn18 wrote:
Thu Dec 28, 2017 9:15 am
My county completed their assessment on 21 Dec 2017 (for 2017 taxes due, we pay one year in arrears). I have the online assessment but no bill yet. I will deduct the prepaid taxes and the online assessment will be my documentation.
My situation is nearly identical. County completed assessment for 2017 taxes on 12/26. I paid those taxes at the tax office yesterday and received as a receipt the bill I would have received in January, stamped "Paid 12/27/17".

Given the recent IRS guidance there is no way in heck I would attempt to deduct payment of an estimate.
They said they will send the bill by the end of the year, so we'll see what happens.

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Re: IRS clarifies 2018 property tax prepayment

Post by tfb » Thu Dec 28, 2017 11:09 am

MikeG62 wrote:
Thu Dec 28, 2017 8:03 am
So if Buffetologist has a tax bill in hand, pays that bill prior to Jan 1 and his/her township accepts the payment as settlement of the tax liability and not a deposit, I think this fits the IRS guidance and should be deductible. After all, how is this taxpayer not liable for the tax imposed? The fact that there is a true-up mechanism in the following year would not appear to make the taxpayer not liable for the amounts already billed. At the very least, it would seem worth taking the position that it is deductible and defending to the IRS on audit (in the very, very unlikely event that even becomes necessary) - I would.
The problem is Buffetologist does not have a tax bill in hand. Buffetologist only anticipates there will be a bill due on 8/1/2018 and another due on 11/1/2018 and Buffetologist can estimate with high accuracy what the amounts will be, but there is nothing official from the local government that Buffetologist owes those amounts at this time. Another thing to consider is what the "record date" of ownership will those anticipated bills be based on? If Buffetologist ceases to be the property owner on 1/1/2018, will Buffetologist still owe the 8/1/2018 and 11/1/2018 payments? If not, those anticipated bills have not been imposed on Buffetologist yet.
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Re: IRS clarifies 2018 property tax prepayment

Post by corn18 » Thu Dec 28, 2017 11:16 am

tfb wrote:
Thu Dec 28, 2017 11:09 am
MikeG62 wrote:
Thu Dec 28, 2017 8:03 am
So if Buffetologist has a tax bill in hand, pays that bill prior to Jan 1 and his/her township accepts the payment as settlement of the tax liability and not a deposit, I think this fits the IRS guidance and should be deductible. After all, how is this taxpayer not liable for the tax imposed? The fact that there is a true-up mechanism in the following year would not appear to make the taxpayer not liable for the amounts already billed. At the very least, it would seem worth taking the position that it is deductible and defending to the IRS on audit (in the very, very unlikely event that even becomes necessary) - I would.
The problem is Buffetologist does not have a tax bill in hand. Buffetologist only anticipates there will be a bill due on 8/1/2018 and another due on 11/1/2018 and Buffetologist can estimate with high accuracy what the amounts will be, but there is nothing official from the local government that Buffetologist owes those amounts at this time. Another thing to consider is what the "record date" of ownership will those anticipated bills be based on? If Buffetologist ceases to be the property owner on 1/1/2018, will Buffetologist still owe the 8/1/2018 and 11/1/2018 payments? If not, those anticipated bills have not been imposed on Buffetologist yet.
If property taxes are paid in arrears, I think BO will still owe the taxes.

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by tedclu » Thu Dec 28, 2017 11:19 am

In the exact same boat, going down to the county and asking for a bill at lunch.


Gopherrube1 wrote:
Thu Dec 28, 2017 9:27 am
I live in Hennepin County (Minnesota), and they sent out a "Proposed Levies and Taxes" statement back in November which relates to proposed 2018 property taxes. It specifically says, "This is not a bill - Do not pay".

Hennepin County has since come out and said, "If you would like to prepay your 2018 property taxes, you may pay up to the amount stated in your proposed property tax notice sent in November." So, this has caused many to go and prepay 2018 property taxes like many are doing around the country based on the proposed tax amount.

However, the actual property tax statement doesn't come out until March 2018 (with payments due in May and October), which I assume is when the property tax is "assessed". Am I correct in thinking that I wouldn't be able to deduct any prepaid property taxes given these facts?

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Re: IRS clarifies 2018 property tax prepayment

Post by tfb » Thu Dec 28, 2017 11:22 am

corn18 wrote:
Thu Dec 28, 2017 11:16 am
tfb wrote:
Thu Dec 28, 2017 11:09 am
MikeG62 wrote:
Thu Dec 28, 2017 8:03 am
So if Buffetologist has a tax bill in hand, pays that bill prior to Jan 1 and his/her township accepts the payment as settlement of the tax liability and not a deposit, I think this fits the IRS guidance and should be deductible. After all, how is this taxpayer not liable for the tax imposed? The fact that there is a true-up mechanism in the following year would not appear to make the taxpayer not liable for the amounts already billed. At the very least, it would seem worth taking the position that it is deductible and defending to the IRS on audit (in the very, very unlikely event that even becomes necessary) - I would.
The problem is Buffetologist does not have a tax bill in hand. Buffetologist only anticipates there will be a bill due on 8/1/2018 and another due on 11/1/2018 and Buffetologist can estimate with high accuracy what the amounts will be, but there is nothing official from the local government that Buffetologist owes those amounts at this time. Another thing to consider is what the "record date" of ownership will those anticipated bills be based on? If Buffetologist ceases to be the property owner on 1/1/2018, will Buffetologist still owe the 8/1/2018 and 11/1/2018 payments? If not, those anticipated bills have not been imposed on Buffetologist yet.
If property taxes are paid in arrears, I think BO will still owe the taxes.
However they appear to be for the year starting on July 1, 2018.
Harry Sit, taking a break from the forums.

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Re: IRS clarifies 2018 property tax prepayment

Post by MikeG62 » Thu Dec 28, 2017 11:25 am

tfb wrote:
Thu Dec 28, 2017 11:09 am
MikeG62 wrote:
Thu Dec 28, 2017 8:03 am
So if Buffetologist has a tax bill in hand, pays that bill prior to Jan 1 and his/her township accepts the payment as settlement of the tax liability and not a deposit, I think this fits the IRS guidance and should be deductible. After all, how is this taxpayer not liable for the tax imposed? The fact that there is a true-up mechanism in the following year would not appear to make the taxpayer not liable for the amounts already billed. At the very least, it would seem worth taking the position that it is deductible and defending to the IRS on audit (in the very, very unlikely event that even becomes necessary) - I would.
The problem is Buffetologist does not have a tax bill in hand. Buffetologist only anticipates there will be a bill due on 8/1/2018 and another due on 11/1/2018 and Buffetologist can estimate with high accuracy what the amounts will be, but there is nothing official from the local government that Buffetologist owes those amounts at this time. Another thing to consider is what the "record date" of ownership will those anticipated bills be based on? If Buffetologist ceases to be the property owner on 1/1/2018, will Buffetologist still owe the 8/1/2018 and 11/1/2018 payments? If not, those anticipated bills have not been imposed on Buffetologist yet.
I see your point. I misread his post and thought he was talking about the bills due on Feb 1, 2018 and May 1, 2018 (not 2019) as to which he had payment vouchers in hand. I don't think he can make a payment on the as yet not issued Aug 2018 and Nov 2018 bills under the assumption he knows what the amounts will be. That would still, in my mind, amount to paying on an estimate (and be more akin to the IRS example #2).
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Re: IRS clarifies 2018 property tax prepayment

Post by Buffetologist » Thu Dec 28, 2017 11:31 am

tfb wrote:
Thu Dec 28, 2017 11:09 am
MikeG62 wrote:
Thu Dec 28, 2017 8:03 am
So if Buffetologist has a tax bill in hand, pays that bill prior to Jan 1 and his/her township accepts the payment as settlement of the tax liability and not a deposit, I think this fits the IRS guidance and should be deductible. After all, how is this taxpayer not liable for the tax imposed? The fact that there is a true-up mechanism in the following year would not appear to make the taxpayer not liable for the amounts already billed. At the very least, it would seem worth taking the position that it is deductible and defending to the IRS on audit (in the very, very unlikely event that even becomes necessary) - I would.
The problem is Buffetologist does not have a tax bill in hand. Buffetologist only anticipates there will be a bill due on 8/1/2018 and another due on 11/1/2018 and Buffetologist can estimate with high accuracy what the amounts will be, but there is nothing official from the local government that Buffetologist owes those amounts at this time. Another thing to consider is what the "record date" of ownership will those anticipated bills be based on? If Buffetologist ceases to be the property owner on 1/1/2018, will Buffetologist still owe the 8/1/2018 and 11/1/2018 payments? If not, those anticipated bills have not been imposed on Buffetologist yet.
My current tax bill contains the full amount of the Dec 2017 assessment. It invoices the Q3 (2/1/18) and Q4 (5/1/18) due dates which is equal to the total December 2017 assessment minus the 8/1/17 and 11/1/17 payments which were based on last year's assessment, and determines to the penny, the exact amount of taxes owed by the Q1 (8/1/18) and Q2 (11/1/18) due dates (the Dec 2017 assessment divided by 4). It is not an estimate.

The determining question is whether the assessment or the invoice imposes the tax?

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Re: IRS clarifies 2018 property tax prepayment

Post by MikeG62 » Thu Dec 28, 2017 12:04 pm

Buffetologist wrote:
Thu Dec 28, 2017 11:31 am
tfb wrote:
Thu Dec 28, 2017 11:09 am
MikeG62 wrote:
Thu Dec 28, 2017 8:03 am
So if Buffetologist has a tax bill in hand, pays that bill prior to Jan 1 and his/her township accepts the payment as settlement of the tax liability and not a deposit, I think this fits the IRS guidance and should be deductible. After all, how is this taxpayer not liable for the tax imposed? The fact that there is a true-up mechanism in the following year would not appear to make the taxpayer not liable for the amounts already billed. At the very least, it would seem worth taking the position that it is deductible and defending to the IRS on audit (in the very, very unlikely event that even becomes necessary) - I would.
The problem is Buffetologist does not have a tax bill in hand. Buffetologist only anticipates there will be a bill due on 8/1/2018 and another due on 11/1/2018 and Buffetologist can estimate with high accuracy what the amounts will be, but there is nothing official from the local government that Buffetologist owes those amounts at this time. Another thing to consider is what the "record date" of ownership will those anticipated bills be based on? If Buffetologist ceases to be the property owner on 1/1/2018, will Buffetologist still owe the 8/1/2018 and 11/1/2018 payments? If not, those anticipated bills have not been imposed on Buffetologist yet.
My current tax bill contains the full amount of the Dec 2017 assessment. It invoices the Q3 (2/1/18) and Q4 (5/1/18) due dates which is equal to the total December 2017 assessment minus the 8/1/17 and 11/1/17 payments which were based on last year's assessment, and determines to the penny, the exact amount of taxes owed by the Q1 (8/1/18) and Q2 (11/1/18) due dates (the Dec 2017 assessment divided by 4). It is not an estimate.

The determining question is whether the assessment or the invoice imposes the tax?
Do you have payment vouchers (and a printed bill and/or tax assessment) which show the amounts due on Aug 1, 2018 and Nov 1, 2018? Or are you simply stating that when you do get a bill with vouchers for those dates, it will be for the same amounts as for the Feb 1 and May 1 2018 vouchers?
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Re: IRS clarifies 2018 property tax prepayment

Post by Buffetologist » Thu Dec 28, 2017 12:43 pm

MikeG62 wrote:
Thu Dec 28, 2017 12:04 pm
Buffetologist wrote:
Thu Dec 28, 2017 11:31 am
tfb wrote:
Thu Dec 28, 2017 11:09 am
MikeG62 wrote:
Thu Dec 28, 2017 8:03 am
So if Buffetologist has a tax bill in hand, pays that bill prior to Jan 1 and his/her township accepts the payment as settlement of the tax liability and not a deposit, I think this fits the IRS guidance and should be deductible. After all, how is this taxpayer not liable for the tax imposed? The fact that there is a true-up mechanism in the following year would not appear to make the taxpayer not liable for the amounts already billed. At the very least, it would seem worth taking the position that it is deductible and defending to the IRS on audit (in the very, very unlikely event that even becomes necessary) - I would.
The problem is Buffetologist does not have a tax bill in hand. Buffetologist only anticipates there will be a bill due on 8/1/2018 and another due on 11/1/2018 and Buffetologist can estimate with high accuracy what the amounts will be, but there is nothing official from the local government that Buffetologist owes those amounts at this time. Another thing to consider is what the "record date" of ownership will those anticipated bills be based on? If Buffetologist ceases to be the property owner on 1/1/2018, will Buffetologist still owe the 8/1/2018 and 11/1/2018 payments? If not, those anticipated bills have not been imposed on Buffetologist yet.
My current tax bill contains the full amount of the Dec 2017 assessment. It invoices the Q3 (2/1/18) and Q4 (5/1/18) due dates which is equal to the total December 2017 assessment minus the 8/1/17 and 11/1/17 payments which were based on last year's assessment, and determines to the penny, the exact amount of taxes owed by the Q1 (8/1/18) and Q2 (11/1/18) due dates (the Dec 2017 assessment divided by 4). It is not an estimate.

The determining question is whether the assessment or the invoice imposes the tax?
Do you have payment vouchers (and a printed bill and/or tax assessment) which show the amounts due on Aug 1, 2018 and Nov 1, 2018? Or are you simply stating that when you do get a bill with vouchers for those dates, it will be for the same amounts as for the Feb 1 and May 1 2018 vouchers?
The person in the tax collectors office told me that when I get the bills with vouchers for 8/1/18 and 11/1/18, the quarterly amount will be precisely the amount of the December 2017 assessment divided by 4. They calculated this for me. The bills due 2/1/18 and 5/1/18 are larger because the bills due 8/1/17 and 11/1/17 were precisely equal to the amount of the December 2016 assessment divided by 4. The amount paid for 8/1/17 and 11/1/17 is subtracted from the December 2017 assessment. The result is divided by 2 and that becomes the 2/1/18 and 5/1/18 coupons which are invoiced in December 2017.

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by Spirit Rider » Thu Dec 28, 2017 12:58 pm

Leesbro63 wrote:
Thu Dec 28, 2017 9:12 am
If you have the money, wouldn't it make sense to make the prepayment? There's a reasonable chance that the guidelines will get challenged. And because this is a one time thing, the IRS might decide to back off. There is no "setting a precedent value" to the IRS. And by issuing the guidelines now, it will scare off many people from doing prepayment, which might be their goal. So there will only be a small handful (relative) who are at issue who actually did the prepayment without an official tax bill or tax assessment by 12/31/17 for 2018.
These guidelines are not new and this is not a one time thing. The IRS was just clarifying what the existing rules are. Taxpayers have been bunching deductions under these rules for many years. This has already been challenged and upheld in the tax court. The only thing that is new is many more taxpayers are involved this year.

With that said, it is quite possible that there will be additional challenges to the tax courts. Who knows, maybe one of those challenges will be successful.
Last edited by Spirit Rider on Thu Dec 28, 2017 1:02 pm, edited 1 time in total.

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Re: IRS clarifies 2018 property tax prepayment

Post by tfb » Thu Dec 28, 2017 12:59 pm

Buffetologist wrote:
Thu Dec 28, 2017 11:31 am
My current tax bill contains the full amount of the Dec 2017 assessment. It invoices the Q3 (2/1/18) and Q4 (5/1/18) due dates which is equal to the total December 2017 assessment minus the 8/1/17 and 11/1/17 payments which were based on last year's assessment, and determines to the penny, the exact amount of taxes owed by the Q1 (8/1/18) and Q2 (11/1/18) due dates (the Dec 2017 assessment divided by 4). It is not an estimate.

The determining question is whether the assessment or the invoice imposes the tax?
From what you described so far, the December 2017 assessment (which comes out in January 2018 in some towns) finalizes the taxes for the fiscal year that runs from July 2017 to June 2018. It does not say anything about the year that will start in July 2018. Property owners (as of what date?) are invoiced in June 2018 for payments due on 8/1/2018 and 11/1/2018, which happen to be 1/4 based on the December 2017 assessment as a preliminary estimate for the July 2018 - June 2019 tax, to be finalized in December 2018 or January 2019. The record date is still a key. If you sell the property now will you be invoiced in June 2018 for the 8/1/2018 and 11/1/2018 payments or will the new owner be invoiced? If it's the new owner, then the amounts happen to bear some relationship with the December 2017 assessment does not create a tax liability for you at this moment.
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Re: IRS clarifies 2018 property tax prepayment

Post by Buffetologist » Thu Dec 28, 2017 1:06 pm

From what you described so far, the December 2017 assessment (which comes out in January 2018 in some towns) finalizes the taxes for the fiscal year that runs from July 2017 to June 2018. It does not say anything about the year that will start in July 2018. Property owners (as of what date?) are invoiced in June 2018 for payments due on 8/1/2018 and 11/1/2018, which happen to be 1/4 based on the December 2017 assessment as a preliminary estimate for the July 2018 - June 2019 tax, to be finalized in December 2018 or January 2019.
Precisely!
The record date is still a key. If you sell the property now will you be invoiced in June 2018 for the 8/1/2018 and 11/1/2018 payments or will the new owner be invoiced? If it's the new owner, then the amounts happen to bear some relationship with the December 2017 assessment does not create a tax liability for you at this moment.
This is an excellent point. How do I find out the record date? Is that a technical term? Would the tax assessors office be familiar with that term?

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by logiclife » Thu Dec 28, 2017 1:13 pm

Bit confused...

So I can't deduct the prepayment of 2017 property taxes (we usually pay in 2018. For 2016 we paid this year) if I paid by this week!? Correct!?

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by exarkun » Thu Dec 28, 2017 1:14 pm

tedclu wrote:
Thu Dec 28, 2017 11:19 am
In the exact same boat, going down to the county and asking for a bill at lunch.


Gopherrube1 wrote:
Thu Dec 28, 2017 9:27 am
I live in Hennepin County (Minnesota), and they sent out a "Proposed Levies and Taxes" statement back in November which relates to proposed 2018 property taxes. It specifically says, "This is not a bill - Do not pay".

Hennepin County has since come out and said, "If you would like to prepay your 2018 property taxes, you may pay up to the amount stated in your proposed property tax notice sent in November." So, this has caused many to go and prepay 2018 property taxes like many are doing around the country based on the proposed tax amount.

However, the actual property tax statement doesn't come out until March 2018 (with payments due in May and October), which I assume is when the property tax is "assessed". Am I correct in thinking that I wouldn't be able to deduct any prepaid property taxes given these facts?
Let us know if they give you a real bill. I doubt it, since school levies in many MN counties were just votes on this fall...

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by gilgamesh » Thu Dec 28, 2017 1:20 pm

logiclife wrote:
Thu Dec 28, 2017 1:13 pm
Bit confused...

So I can't deduct the prepayment of 2017 property taxes (we usually pay in 2018. For 2016 we paid this year) if I paid by this week!? Correct!?
This is my question as well...we pay 2017 property taxes in early 2018, when assessments are done.

Can I deduct 2017 property taxes if the assessment is not done in 2017?...I would assume they will only try to clamp down on pre-payment of 2018, or would they impose this assesssement having to be done in 2017 even for 2017 property taxes?

Our county lags behind a Years for property tax assessment and payment

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by neilpilot » Thu Dec 28, 2017 1:25 pm

logiclife wrote:
Thu Dec 28, 2017 1:13 pm
Bit confused...

So I can't deduct the prepayment of 2017 property taxes (we usually pay in 2018. For 2016 we paid this year) if I paid by this week!? Correct!?
I don't see why this is confusing. If you have an invoice and/or can make payment online, and the 2017 property tax bill is "assessed", then pay it either in 2017 or 2018.

We paid our 2016 bill in January 2017, and our 2017 bill in December 2017. We would have irrespective of the tax law change, since we've been bunching and alternating standard deduction and itemized years since we paid off our mortgage 6 years ago.

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by logiclife » Thu Dec 28, 2017 1:32 pm

neilpilot wrote:
Thu Dec 28, 2017 1:25 pm
logiclife wrote:
Thu Dec 28, 2017 1:13 pm
Bit confused...

So I can't deduct the prepayment of 2017 property taxes (we usually pay in 2018. For 2016 we paid this year) if I paid by this week!? Correct!?
I don't see why this is confusing. If you have an invoice and/or can make payment online, and the 2017 property tax bill is "assessed", then pay it either in 2017 or 2018.

We paid our 2016 bill in January 2017, and our 2017 bill in December 2017. We would have irrespective of the tax law change, since we've been bunching and alternating standard deduction and itemized years since we paid off our mortgage 6 years ago.

I should have been more clear may be. So, we still didn't get the tax bill for 2017, that we need to pay in 2018. However the property values are assessed for 2017 already by the county but no tax bill is yet sent out for 2017. So if I prepay my 2017 tax bill ( no more than what I have paid for 2016) this week, can I deduct both 2016 and 2017(pre paid) property tax payments!?

Hope I didn't muddle the waters more..

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by gilgamesh » Thu Dec 28, 2017 2:01 pm

neilpilot wrote:
Thu Dec 28, 2017 1:25 pm
logiclife wrote:
Thu Dec 28, 2017 1:13 pm
Bit confused...

So I can't deduct the prepayment of 2017 property taxes (we usually pay in 2018. For 2016 we paid this year) if I paid by this week!? Correct!?
I don't see why this is confusing. If you have an invoice and/or can make payment online, and the 2017 property tax bill is "assessed", then pay it either in 2017 or 2018.

We paid our 2016 bill in January 2017, and our 2017 bill in December 2017. We would have irrespective of the tax law change, since we've been bunching and alternating standard deduction and itemized years since we paid off our mortgage 6 years ago.
The confusion is because this is 2017 property taxes...now, that I've read the IRS bulletin it looks like the new directive only pertains to 2018 property taxes and not 2017....so, it looks like I could pay 2017 property taxes even if it has not been assessed.

https://www.irs.gov/newsroom/irs-adviso ... id-in-2017

It starts out saying this...
IR-2017-210, Dec. 27, 2017

WASHINGTON - The Internal Revenue Service advised tax professionals and taxpayers today that pre-paying 2018 state and local real property taxes in 2017 may be tax deductible under certain circumstances.

logiclife
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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by logiclife » Thu Dec 28, 2017 2:29 pm

Not too sure about what you are saying coz the irs guidance could be interpreted as, you can't just deduct taxes that are not billed to you by just prepaying..regardless of what year you are paying for.

Unless someone thinks otherwise..

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by Nate79 » Thu Dec 28, 2017 2:55 pm

The rules and guidance haven't changed. You can not prepay property taxes and deduct them unless they have been assessed. This is true for 2017 and reaffirmed as true for 2018.

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Re: CNBC quotes IRS on terms of deductibility of prepaid property taxes

Post by gilgamesh » Thu Dec 28, 2017 3:00 pm

Ok thank you

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