Prepaying Your Property Tax? I.R.S. Cautions It Might Not Pay Off


Some states have encouraged residents to try to skirt the new cap on state and local tax deductions. Last week, Gov. Andrew M. Cuomo of New York signed an executive order paving the way for residents to prepay their property taxes.

“We’re doing this to circumvent the bill the president just signed?” Mr. Cuomo asked at a Friday news conference. “You’re damn right I am.”

Those efforts could still succeed. The I.R.S. guidance is advice to taxpayers and tax preparers, not a legal ruling. And the agency did not define what it means for a tax to be “assessed.”

That could turn out to be a key question. Property tax schedules vary widely from state to state and even county to county. Some states have already sent out tax assessments for part of 2018, even if the payments are not due until next year. In those states, tax lawyers said, homeowners who prepay taxes will almost certainly be able to deduct their taxes under the 2017 rules.

Other states have not even begun the 2018 assessment process. In those states, prepayment almost certainly will not help taxpayers.

And in some states, homeowners may have received estimated assessments or taxes due in 2018 based partly on assessments from earlier years. Similarly, Mr. Cuomo’s executive order allowed local governments to levy taxes ahead of schedule. How the I.R.S. will treat such cases remains uncertain.

“It’s an open question right now,” said David Herzig, a professor of tax law at Valparaiso University. “It depends on your state. There’s going to be no uniform answer.”

Mr. Herzig said the I.R.S. guidance was also based on limited precedents and could be overturned by a legal challenge. As a result, he said, many taxpayers might prepay and hope that the courts rule in their favor.

That could be a risky strategy for some taxpayers, however. Andy Grewal, a professor of tax law at the University of Iowa, said that homeowners who paid their taxes into an escrow account — a common practice — could end up facing an audit if they prepay, because the tax payments they report to the I.R.S. will differ from those reported by their banks.

“I think people should be aware that there could be some administrative headaches that come out of this,” Mr. Grewal said.

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