Yesterday, the IRS issued guidance on prepaying 2018 property taxes by the end of 2017. They stated that the 2018 taxes must be actually assessed by the taxing jurisdiction (county or city for Virginia) for a prepayment to be deductible on 2017 income tax returns. Since few counties in Virginia are able to assess by year end, this seems to eliminate the possibility of prepaying real estate taxes for 2018 and getting a deduction for 2017. Fairfax and Loudoun counties are not able to assess 2018 taxes, so the IRS guidance would make prepayments to those jurisdictions not deductible in 2017. I read that Falls Church may actually be assessing 2018 taxes now, but I’m not certain about that.
However, while the IRS guidance is useful, it isn’t necessarily the final word. If they had issued a Treasury Regulation, that would have the force of law. The guidance merely shows the IRS’s current thinking. After the start of the year, Congress might tell them to change their minds. Then again, maybe Congress will let their guidance become a Treasury Regulation in a month or so. We are in an uncertain place.
My recommendation is that there is no harm in prepaying 2018 property taxes in 2017, if you don’t mind standing in line on a cold day. At worst, you won’t be able to deduct the prepayment for 2017. It will then be deductible in 2018, subject to the $10K limit on state and local taxes. You have lost nothing, except the time value of the money that sits in your county’s hands.
However, if you don’t make the prepayment, and the IRS is forced to rethink its guidance, not prepaying costs you a tax deduction in 2017 that may be less valuable in 2018. You have nothing to lose by prepaying.
If you have any questions, please contact me at firstname.lastname@example.org or (703) 818-8284.
Thanks for reading!
Frank Stitely, CPA, CVA