Thousands of people across the country are trying to prepay part or all of their 2018 property tax bill before New Year’s Day. That is when the tax bill signed into law last week takes effect for the 2018 tax year. The tax bill raised the standard deduction for individuals and couples while limiting the itemized deductions for state and local taxes to $10,000.
The itemized deductions limitations could cost some people thousands of dollars. Homeowners in high-tax, affluent areas will be some of the hardest hit by the change. Previously, if someone paid $15,000 in property taxes and $10,000 in state and local income taxes, they were allowed to deduct $25,000 on their federal tax return.
The Internal Revenue Service said that maneuver could work in an advisory notice posted to its website, but only under limited circumstances. To qualify for the deduction, property taxes must be assessed and paid in 2017. The agency did not define what it means for a tax to be “assessed.”
Some states have already sent out tax assessments for part of 2018, even if the payments are not due until next year. Those prepaying homeowners will almost certainly be able to deduct their taxes under the 2017 rules. People who paid taxes that had not yet been assessed will not get the benefits of those prepayments. Homeowners who prepaid their taxes based on estimated assessments, or who paid several years’ worth of taxes at once, will probably fail to qualify.
Some states are trying to find ways to circumvent the bill the president just signed. Gov. Andrew M. Cuomo of New York signed an executive order last week to allow local governments to levy taxes ahead of schedule so residents can prepay their property taxes. The new law doesn’t allow people to prepay income taxes.
According to local media reports in Fairfax, Va., hundreds of people lined up to prepay their property taxes on the day after Christmas. New York, New Jersey and other states have also reported large numbers of people making prepayments. Local officials are encouraging people to talk with a tax preparer since everyone’s situation is different.