Millions of American homeowners this week interrupted their lazy winter vacation days and post-holiday clearance shopping to frantically crowd their county or city tax offices, hoping to prepay next year's property taxes and dodge a tax bullet. Now the IRS, for whom the Grinch is perhaps not just a seasonal foil but a year-round inspiration, says they may have been wasting their time.
Let's back up a bit. Currently, if you itemize your tax return, you can deduct any state and local taxes (SALT) you pay, such as property or state income taxes. The new GOP tax law, however, limits those deductions to $10,000 total — a blatant jab at high-tax and high-cost blue states like California, New York, Illinois, New Jersey, and Connecticut, among others.
In response, some homeowners with the means to do so have been rushing to prepay their 2018 property tax bills. That way, they can take the deduction on their 2017 tax return, while it still exists in full.
In New York, where real estate taxes alone can easily top $10,000 a year on average — even before state or city income taxes — Governor Andrew Cuomo urged homeowners to prepay their 2018 property taxes if possible, to take advantage of the full deduction while they still could.
Many of those prepayments won't be tax-deductible after all.
But according to the new IRS directive, many of those prepayments won't be tax-deductible after all. The IRS said on Wednesday that prepayments could only be deducted if the tax bill was officially assessed for 2018 — in other words, simply prepaying an estimated bill won't cut it. "A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017," the IRS statement says.
If you've already received an official, exact tax bill for 2018, a prepayment should be deductible. And if your city is on a staggered fiscal year and issues its official property tax levies on July 1 each year, you could probably prepay the first half of your 2018 taxes. But simply sending in a check for $5,000 because last year's bill was $5,000 won't help you avoid the new cap.
In Long Island, for example, property tax prepayments should qualify for a 2017 deduction, since Suffolk and Nassau counties have already sent out exact tax bills for next year. But in pricey Westchester County, north of New York City, officials told the Wall Street Journal they wouldn't have precise tax bills ready in time - nor will most areas around Washington, D.C., according to the Washington Post.
The last-minute IRS announcement has thrown another monkey wrench into an already chaotic year-end tax scramble in the wake of the GOP tax overhaul.
"It's a nightmare," Virginia resident Brian Lowit told the Post. Lowit called up his accountant and mortgage company before wiring a full year's property tax payment to Fairfax County —one of hundreds to do so this week — only to learn of the IRS announcement afterward. "I'm definitely frustrated, annoyed and irritated. The rush to get that bill done screwed everyone up. It's insanity and it's stupid."
Kind of like a seasick crocodile.