Author Topic: Prepaid 2018 Property Taxes in 2017: Deduct or No?  (Read 343 times)

uphillslide

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Prepaid 2018 Property Taxes in 2017: Deduct or No?
« on: February 16, 2018, 11:57:43 AM »
It's tax time. Usually straightforward. This year; maybe not.

Short background. My property taxes and state taxes total over $21K. So given that I'm losing over half of my usual deduction in the new tax law, I prepaid my property taxes in 2017. I did this before the IRS issued guidance of this section of the new tax law--in a nutshell--that 2018 property taxes may only be prepaid in the case that assessments had been made prior to Jan 1, 2018 and that the municipality would accept them. My municipality did accept them. And as mentioned I did get a receipt dated before the guidance was issued. My municipality, however, had not assessed for 2018 (incidentally, it just did this week back dated to Jan 1 2018).

My question for those in a similar situation: (prepaid property taxes, paid before guidance issued, muni did not assess). Are you going to go ahead and deduct your property taxes for 2018 that you prepaid in 2017?

Thanks!




VoteCthulu

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Re: Prepaid 2018 Property Taxes in 2017: Deduct or No?
« Reply #1 on: February 16, 2018, 12:59:43 PM »
The IRS has offered no further guidance on what does or does not count as the property tax being "assessed" during 2017, so I went ahead and deducted what I payed in 2017 based on the preliminary tax estimate my county sent me for 2018.

I could well be wrong, and it could cause an audit, but I don't morally feel like I'm cheating or twisting the rules. I would prefer that the IRS clearly stated whether those in my state could or could not deduct this, but they've had over a month to clarify their statement and haven't.

If you think it's wrong for your circumstances, then just don't do it. Otherwise, the chances of an audit are pretty low, so I wouldn't spend much time worrying about it.

Greenstache

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Re: Prepaid 2018 Property Taxes in 2017: Deduct or No?
« Reply #2 on: February 16, 2018, 01:54:54 PM »
Interestingly, the IRS notice was only an advisory and is not binding. 

The advisory contradicts prior established rules for deductibility - quoting from the 2016 RIA federal tax handbook - Paragraph 1766, When Prepaid Taxes and Estimated Tax Payments are Deductible: "A cash basis taxpayer may deduct an advance payment of tax in the year of payment as long as it's an actual good faith payment and not a mere deposit. But the advance payment of state taxes that are later refunded won't be deductible unless taxpayer had a reasonable basis, at the time of payment, for believing he owed the taxes."

uphillslide

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Re: Prepaid 2018 Property Taxes in 2017: Deduct or No?
« Reply #3 on: February 16, 2018, 04:39:36 PM »
@Greenstache Right. A Non binding contradictory advisory.

Thanks @VoteCthulu for sharing what you did. I'm leaning toward just filing with the deduction. I'd like to wait a bit longer to file with a larger "swell" of filers to improve chances of it going through. At my own risk though of course due to the unprecedented scope of identity hacking...another area the administration and congress are woefully addressing (not addressing).