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All About Prepaying Your Property Taxes
In late December, President Trump signed sweeping tax legislation into law. Under the new law, taxpayers can only deduct $10,000 in combined property taxes and other state and local taxes (SALT) from their federal taxes. This change will go into effect in January 2018, meaning it will impact the 2018 taxes that you file in April 2019. The cap on the SALT deduction is a cause for concern for many homeowners in high-tax states. To lessen the impact, some of these homeowners are eager to prepay property taxes for 2018 by December 31 in order to deduct them from their 2017 tax bill.

However, paying early isn’t a simple process for most people, and it might not even be the right move for you. Read on as we explain who can pay their property taxes early and how to do so.

What to Know About Prepaying Your Property Taxes 

First things first, if you take the standard tax deduction, this doesn’t affect you. Only those who itemize their tax deductions need to worry about this change, which is about 30% of taxpayers, according to the Tax Foundation. Second, this change mainly impacts those who earn over $100,000 and have high-value properties in areas with high property taxes such as New Jersey, New York, Illinois, Connecticut and California. If your property tax bill is nowhere near $10,000 each year, you likely don’t have to worry about this change.

However, homeowners who do fit into the categories above could stand to save thousands by prepaying their property taxes for 2018 before December 31, 2017. This is because the current SALT deduction allows property owners to deduct an unlimited amount of property taxes. For instance, the average homeowner in Westchester County, New York had a property tax bill upwards of $16,000 in 2016, according to lohud.com. With a tax bill that large, it’s worth calling your town supervisor or visiting your tax collector’s office to see if you can pay early.

The IRS Response So Far

All About Prepaying Your Property Taxes

The IRS issued an advisory statement on December 27 in response to inquiries about prepayment, saying: “whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.”

This means that if your state or local county’s assessment schedule doesn’t align, you won’t be allowed to deduct the payment on your 2018 taxes.

For example, if your county’s property tax assessment schedule is from June 1, 2017 to June 1, 2018, you can pay through June 1, 2018, but you can’t pay for the assessment of June 1, 2018 to June 2019 in 2017 and claim it. You can only deduct what’s assessed in 2017 even if your county accepts payments in the second scenario (according to the IRS).

However, each state is treating the tax bill differently, so it’s worth checking with your local government. For example, in New York, Governor Cuomo signed an executive order that allows local governments to levy taxes ahead of schedule. How the IRS will treat these situations has not yet been determined, however, so it’s not cut and dry whether state laws will supersede IRS guidelines.

How to Prepay Property Taxes

You’ll need to contact your county’s office that collects property tax. In some regions your town supervisor’s office takes care of this, in others, you can find information via a county or state finance page. It depends on where your property is located and will differ across county lines. You can check your last tax bill to find a contact number, email, website or office location. Some areas will allow electronic payment, while others will need you to come in person.

Who Can’t Prepay Property Taxes?

You might have trouble prepaying your property taxes if you generally pay through an escrow account. This means that your bank withholds money for taxes and insurance usually by sending you your mortgage bill with both charges added on top. That surplus money sits in your escrow account until property taxes or insurance payments come due and your bank cuts the check. If you try to get ahead by paying your county early for 2018, your records and the bank’s won’t match and you may be subject to an IRS audit. An audit isn’t the end of the world, but it does take time and you’ll need all your supporting documents.

You also can’t prepay if you’re subject to the alternative minimum tax. And like we discussed above, if your county hasn’t assessed your property for taxes in 2017, you can’t pay early based on an estimate.

Your county also might not accept prepayment. Property taxes differ state to state and county to county, and are administered at the local level. That means different laws and jurisdictions for each area in the U.S. What you might be able to do for your property isn’t the same as a family member across the U.S. You’ll have to check with your local tax assessment and finance office to be certain.

Finally, if you don’t itemize your tax deductions, there’s no reason to prepay.

Bottom Line

All About Prepaying Your Property Taxes

You might be able to save money this tax season by taking advantage of prepayment. However, your county has to have assessed your property in 2017 and the verdict isn’t in yet on what the IRS will do in cases where a state government issues orders affecting tax payment (such as New York). That means, at the worst, you might give your local government an early payment for no reason (money that could be earning interest for you in a savings account), or, at best, you’ll save money on your 2018 tax bill.

Tips to Help You Survive Tax Season

  • Not sure what you’ll owe come tax time? Plug your information into our income tax calculator. You can find the exact breakdown of what you owe for federal income taxes.
  • Get started on your taxes early and file from the comfort of your own home. We made it easy for you by reviewing the overall best tax software for 2018.
  • You might find that you’d save a significant amount of money if you itemize your taxes this year. It’s worth the time to educate yourself before the tax return deadline as you might save yourself a significant chunk of change.

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Nina Semczuk, CEPF® Nina Semczuk is a Certified Educator in Personal Finance® (CEPF®) and a member of the Society for Advancing Business Editing and Writing. She helps makes personal finance accessible. Nina started her path toward financial literacy at fourteen after filling out her first W-4 and earning her first paycheck. Since then, she's navigated the world of mortgages, VA loans, Roth IRAs and the tax consequences of changing states or countries at least once a year. Nina specializes in mortgage, savings and retirement education. Nina is a graduate of Boston University and served as an officer in the military for five years. Find her work on The Muse, Business Insider, Fast Company, Forbes and around the web.
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