To prepay 2018 property taxes or not to prepay: Does anybody, including the IRS, really know?

CHICAGO - NOVEMBER 1: Current federal tax forms are distributed at the offices of the Internal Revenue Service November 1, 2005 in Chicago, Illinois. A presidential panel today recommended a complete overhaul of virtually every tax law for individuals and businesses. (Photo Illustration by Scott Olson/Getty Images)

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Homeowners across the country who are concerned that their property tax bill will spike in 2018 after President Trump’s tax cuts take effect are seeking to prepay in 2017 and avoid the hike.

Some cities have given the green light for homeowners to prepay, and many are trying to do just that. However, it now appears that those who prepay their 2018 property taxes in 2017 might not actually benefit from doing so, according to a report in The Hill.

“There’s probably more people that think this is good for them than is actually the case,” Ryan Ellis, a conservative tax-reform advocate who is also an enrolled agent certified by the IRS, told The Hill.

In an advisory issued Wednesday by the IRS, it states that prepaid property taxes are only deductible in certain circumstances. The problem is that only homeowners who have actually had their property taxes assessed are able to pay in 2017.

For many taxpayers who have yet to be billed by their city or county, they may not be able to deduct 2018 property taxes next year.

Tax experts are expressing different views on the confusion. Some say litigation could come as a result. Some are surprised by the rigidity of the IRS’ posture on the topic, while others figured property taxes could be prepaid as long as local governments gave the go-ahead — as many have.

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“I don’t think this is the end of it. I think this will be an open topic, and there will be some litigation,” Nicole Kaeding, an economist at the Tax Foundation, told The Hill.

Leah Robinson, who leads the state and local tax group for Mayer Brown told The Hill, “Even if you have to make the assessments, you could argue that the governors’ statements requiring localities to accept these payments are de-facto assessments.”

The IRS offered other reasons in its advisory for why taxpayers might also see no benefit from prepaying their property taxes. For instance, taxpayers only take the state and local tax deduction if they itemize, and data shows that only about 30 percent of taxpayers have itemized in recent years.

Plus, the deduction is disallowed under the alternative minimum tax, a parallel tax system that is designed to prevent high-income households from paying too little in taxes, so taxpayers who already pay that tax would not benefit from prepayment.

What do you think?

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