As Congress inches closer to tax reform, there is a possibility that the Tax Cuts and Jobs Act may affect individual taxpayers’ ability to claim a state and local property tax deduction against their federal income tax obligation. If passed (as either version of the bill reads today), effective after Dec. 31, 2017, the deduction for state and local real property taxes will be capped at $10,000 (and $5,000 for married taxpayers filing separately). Taxpayers in states with higher property tax rates may find this concerning, leading some folks to question whether prepaying their 2018 property tax obligations before the close of the 2017 tax year may enable them to take advantage of the existing deduction.
The answer is not immediately clear. Property taxes paid by individuals are generally administered by counties, cities, and, in some cases, smaller taxing districts, such as school districts or municipal service districts. This means if there is no statutory or regulatory guidance on an issue and states’ departments of revenue are not able to answer the question, this determination is likely up to each local taxing authority. Thus, even if one could estimate their 2018 real property tax obligation based on prior years, some taxpayers may lose out on the ability to take advantage of the existing deduction for property tax payments where early payment is not possible.
To help get to the bottom of the burning question, Bloomberg Tax did some research, learning that some states expressly prohibit property tax prepayment, others welcome it, and some have no (or unclear) guidance on the matter. Alabama, for instance, indicated via email that real and personal property taxes cannot be prepaid. California has express guidance on the issue, prohibiting tax collectors from accepting voluntary prepaid property taxes that will be applied against future tax liability. Meanwhile, Kentucky and Wyoming reported via email that property tax payments cannot be accepted until a property tax bill has been generated.
Taxpayers in Iowa may have better luck. Property taxes are paid in two parts, with the first half due prior to Sept. 1 and the remaining balance due on March 1 of the following year. According to the state’s Department of Revenue, the March payment can be prepaid, but taxpayers are not permitted to prepay beyond that installment. Florida also allows prepaying property tax in installments when the anticipated tax is estimated to be more than $100. The taxpayer must complete and file an application for each tax notice by April 30 of the year in which the taxpayer elects to prepay the taxes. Florida counties also offer discounts for early payments. Similarly, in New York City, where tax bills are mailed quarterly (due in July, October, January, and April) or semi-annually (due in July and January), taxpayers are encouraged to pre-pay what is owed for the next period. If the entire tax obligation is paid in advance, taxpayers will receive a discount. Vermont also allows taxpayers to prepay their property tax obligations and incentivizes prepayment by offering a discount.
Although there are states that may have taken a clear position, a considerable number do not offer guidance when it comes individual taxpayers; others lack clear guidance. Hawaii, for instance, offers no guidance on whether taxpayers can prepay property tax. In Idaho, there is no statutory guidance, but Bloomberg Tax confirmed via email that at least one county allows for prepayments of $25 dollars or more. Louisiana does not provide any relevant authority on the topic, but the Rapides Parish Tax Assessor’s office informed Bloomberg Tax by email that payments cannot be accepted until property tax bills have been mailed to taxpayers. Similarly, Indiana’s Department of Local Government and Finance confirmed that state statutes do not speak to the issue and directed taxpayers to seek guidance from their local property tax collector’s office.
As is often the case, answering the question of whether taxpayers can prepay their property tax obligations in the 2017 tax year will vary among states and, in many cases, local taxing jurisdictions. For those interested in prepayment, where guidance is unclear or lacking, a good first step might be a call to the local tax assessor.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Will your state or local taxing authority allow you to prepay your 2018 tax obligation prior to the end of this year?
To learn more about Congress’s tax proposals, download Bloomberg Tax’s Roadmap to House and Senate Tax Reform Plans, available here.
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Editors Note: As of Dec. 18, 2017, the Conference Report to the Tax Cuts and Jobs Act limits the SALT deduction to $10,000 for state and local income, sales and property taxes paid. The Report also contains a provision regarding the treatment of 2018 income taxes paid before the end of 2017; the prepayment of property taxes is not specifically addressed. Please visit this post for more information about early payment of 2018 income taxes.
Charts updated as of Dec. 18, 2017 to include additional information.
 The property tax fiscal year starts in July and ends in June of the following year.
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