Think you outsmarted the IRS? Maybe not. As news stories emerged about "unprecedented" lines forming at municipal offices as homeowners rushed to prepay 2018 property taxes before the new GOP tax bill goes into effect on Jan. 1, the Internal Revenue Service on Wednesday offered words of caution. With the deduction on state and local taxes, including property taxes, set to be capped at $10,000 starting next year, homeowners in states with high property taxes are hurrying to prepay 2018 before the new year so they can reap the full deduction. But the IRS in an advisory warned such a move only works under "certain circumstances"—and it all boils down to assessments. Whether a homeowner's prepayment in 2017 will work "depends on whether ... the real property taxes are assessed prior to 2018."
If your property taxes for 2018 haven't been assessed prior to 2018, they're not deductible in 2017. The date of assessment is set forth by state or local law, and the IRS gives two hypotheticals
to illustrate. If you're a homeowner whose 2018 assessment hasn't yet been completed and you paid up for 2018, "All that you’ve done is provided an interest-free loan to your municipal government," an economist tells the New York Times
. And a big one, potentially: The Washington Post
reports Fairfax County, Va., took in nearly $16 million in tax prepayments just on Tuesday. The Times
cautions that the IRS advisory is just advice, "not a legal ruling." In states where homeowners have received estimated assessments, there may be wiggle room, and there's a chance that a court challenge could end up favoring all homeowners.