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Pre-paying Your Real Estate Taxes?

It APPEARS the answer is yes. And depending on where you live, you may be permitted to deduct the amount prepaid in 2017 for your 2018 real property taxes on your 2017 personal federal return.

A flurry of information has been released over the past seven days since Congress enacted the new tax bill and reduced the property tax deduction to $10,000 starting January 1, 2018. Each jurisdiction has made its own determination on whether it will accept a prepayment of 2018 real estate taxes. (At the time of this writing, the District of Columbia, Montgomery County, Maryland and Fairfax County, Virginia have confirmed they would accept prepayments, but were uncertain whether taxpayers could include these prepayments in their 2017 property tax deduction).

However, on Wednesday night, the Internal Revenue Service (“IRS”) released an Advisory Memorandum authorizing the prepayment of 2018 real estate taxes and including that prepayment in the 2017 real estate tax deduction in LIMITED circumstances. The IRS Advisory Memorandum stated that “[a] prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.  State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.” I.R.S. Tech. Adv. Mem. IR-2017-210 (Dec. 27, 2017).

This may prohibit many local homeowners from taking advantage of the benefit of prepaying since many local jurisdictions will not assess their 2018 real estate taxes until early 2018. Be sure to speak with a tax professional familiar with the laws of your jurisdiction to determine if you will be permitted to include the prepayment of the 2018 real estate taxes as a real estate tax deduction on your 2017 return. 



The material on this website is not offered as legal advice on any matter and should not be used as a substitute for seeking professional legal advice.