If you are overwhelmed by the deluge of information about the consequences of the new tax law, you’re not alone. We hope that the following summary is helpful.
There are two articles on our site that we will continue to update as new information comes along. You may want to look at Should you be Rushing to Prepay and How to Prepay. The first article is probably the more important one—it discusses whether you should prepay. The second article explains how.
But perhaps we can save you some time with the following summary:
It is permissible to prepay your real property taxes. Doing so lets you deduct next year’s property tax payment on this year’s taxes. However, you cannot deduct these expenses if you are subject to the AMT, as are many higher-wage earners. So if you are subject to the AMT, stop reading now and don’t bother rushing to prepay your property taxes. Also bear in mind that though you might prepay your property taxes for the 2018-2019 tax year, you probably will not be able to deduct the full amount of your prepayment. The IRS limits the time for which you can deduct; in summary, you should not expect to be able to deduct the portion related to 2019 on your 2017 return. As to the deductibility of that portion on a future return, that will depend on then-applicable tax law. But remember that the new tax law doubles the standard deduction—many people will find that they are better off using the standard deduction, in which case your state and local tax payments will be irrelevant in the calculation of your taxes due.
The IRS issued a guidance on December 27 warning that they can only allow deductions for prepayment of property taxes if the tax has already been assessed. This is based on the rule that you do not owe a tax until it has been assessed, and if you are paying something that you do not owe, you cannot deduct it. The District of Columbia has announced that real property taxes are assessed as of October 1, when the tax year begins. Thus, real property taxes for October 2017 through September 2018 are assessed on October 1, 2017. In Montgomery County, Maryland, property tax assessments are made each July thus property taxes for the period from July 1 2017 through June 30 2018 were assessed as of July 1 2017, but property tax assessments for the period from July 1 through December 31 2018 will not be made until July 2018.