I prepaid 2018 property taxes. Mistake?

[Chris K.]

So, following the near unanimous advice of everything I could find, because I have well over 10k in state and local taxes (and will likely opt for the standard deduction under the new tax bill), I went down to the City treasurer’s office today and prepaid my entire property taxes for 2018, like so many other people throughout the country, so I could deduct that payment on my 2017 return.  It was easy.  Although no assessment had yet been issued, the treasurer’s office said that “any overpayment will be refunded” if the assessment came in lower than I had estimated.

A few hours later, I received a push alert to my phone with a news article telling me that the IRS had said that you can only do this only in the limited circumstances where 2018 assessments have been issued in the calendar year 2017, which I’m sad to say, is not the case in my town in Virginia.  Assessments come out in January every year.

Surely I’m not the only person here in this situation.  Chalk it up to a bad break?  Or is this issue not yet over?  I can only imagine the people who have prepaid where property taxes are a lot higher.

[George Skidis]

Since I own an income tax preparation business I will give you my opinion. We are still trying to figure this out for all of our clients but this is the most frequently asked question. Even the tax experts are still researching this. This is a personal opinion and should not be construed as professional advice. Consult your attorney or tax professional for further clarification sometime around the end of January when the IRS lets us know what the rules are for 2017.

The 2017 Illinois real estate taxes are not yet finalized. The amount owed will not be determined until all of the multipliers and tax districts are finalized. As such your real estate tax bill is accrued but not yet incurred. With extreme prejudice I doubt you can make this deduction.   In simpler terms you don't owe the taxes yet. You are in effect placing the funds for the tax payment in escrow with the local tax authority until the bill is due.

You could sign a 5 year lease and pay it all in up front. However, current IRS guidelines require you to amortize the expense over the life of the lease. There may be exceptions to the rule due to special taxing districts but this is the general outcome.

You amortize the cost of a rental dwelling over 27.5 years. It cannot be deducted in the year of purchase.

Since Illinois is broke they would love your interest free early real estate tax contribution. However, the influx of cash may be just the excuse Mad Mad Madigan needs to go on another spending rampage. Driving even more wage earners out of the state.

Unless your itemized Schedule A deductions for 2016 were well in excess of $24,000.00 it won't do any good anyway. The tax deductions for your personal residence are only deductible on schedule A

If you did not itemize on Schedule A you have no business considering this in course of action in the first place.