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Client-resources

Property Tax Prepayment

Kathie Gedde, CPA

December 29, 2017

We’ve had quite a few questions about one particular aspect of the new tax plan signed into law just before Christmas, relating to payment of property taxes.  We want to clarify what year end payments taxpayers can make and deduct them in 2017.

The section of our previous communication relating to property taxes read as follows (highlight added):

  • Individuals (as opposed to businesses) will only be able to claim an itemized deduction of up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the total of (1) state and local property taxes; and (2) state and local income taxes. To avoid this limitation, pay the last installment of estimated state and local taxes for 2017 no later than Dec. 31, 2017, rather than on the 2018 due date. But don't prepay in 2017 a state income tax bill that will be imposed next year – Congress says such a prepayment won't be deductible in 2017. However, Congress only forbade prepayments for state income taxes, not property taxes, so a prepayment on or before Dec. 31, 2017, of a 2018 property tax installment is apparently OK.

 

The IRS clarified this week that only property tax liabilities that had been assessed by taxing authorities would be deductible if paid in 2017 – so prepaying a liability that will be assessed in 2018 is not deductible.  Prepaying an installment that’s due in 2018 for an assessment already made, is deductible.

For example, Oregon assesses property taxes in July each year. For taxes assessed in July 2017, property owners have several payment options – they can 1) pay all their taxes in November 2017, 2) make two payments, in November 2017 and May 2018, or 3) make three payments, in November 2017, February 2018 and May 2018.  If a property owner chose option 2 or 3 initially, he could now choose to make those 2018 payments in 2017 to deduct them in the current year.  He cannot, however, pay toward the property taxes that will be assessed in July 2018.

If you need further details, please call us at (541) 388-7888.  Happy New Year!

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