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IRS: Taxpayers Must Have Official Assessment to Deduct Prepaid 2018 Property Tax

Wealthy homeowners are trying to escape one part of the new Trump Tax by prepaying their 2018 property taxes and applying those payments to their 2017 deductions. The Trump Tax will cap the amount of state and local taxes we can deduct at $10,000.

But last night, the Internal Revenue Service threw another wrench in those wealthy folks’ effort to minimize their Trump Tax. In its latest advisory, the IRS says taxpayers can only deduct 2018 property taxes on their 2017 return if their local jurisdictions have officially assessed those 2018 taxes:

Example 1: Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018.  On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018.   Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.

Example 2: County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 – June 30, 2018. County B intends to make the usual assessment in July 2018 for the period July 1, 2018 – June 30, 2019.  However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year.  Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018 [Internal Revenue Service, Advisory IR-2017-210, 2017.12.27].

The Trump cap on SALT deductions won’t affect typical South Dakotans. If you’re making $100,000 a year and living in a $400,000 house, your property tax in Brown County is maybe $5,600. The IRS calculates your sales tax deduction to be $1,440, but conceivably, if you bought $50K worth of stuff over the year and kept your receipts, you could establish that you paid $3,250 in sales tax. But those property tax and sales tax estimates still don’t reach the Trump threshold. The state and local tax deduction cap is meant to punish people in progressive states that didn’t vote for Trump. Last night’s IRS advisory makes sure that punishment affects more people.


  1. jerry 2017-12-28 09:24

    How many foreign flagged companies get a billion of taxpayer money? How about this one So while NOem takes away the Social Security here and Thune and Rounds take away Medicare from here, foreign companies will be at the feeding trough. Not hard to see why the Russians wanted the takeover, it is good for their business bottom line and they got it on the cheap. A couple hundred million to corrupt anti-American roypublicans and presto, a few billion in reaped rewards.

    Meanwhile, Krebs and Opie are all in on even more giveaways to foreign companies right here and full throated support for the trump agenda. Krebs has even declared it publicly.

  2. JLB 2017-12-28 09:36

    Commentary regarding the tax bill set aside, for what it is worth, I think IRS guidance allows South Dakotan’s to do deduct property taxes paid before the end of the year. In SD, property taxes are due a year behind ie – you are paying 2017 taxes in 2018. However, they are assessed during the calendar year they are for in March (and then you can appeal them, etc).

  3. OldSarg 2017-12-28 14:04

    jerry this isn’t true: “So while NOem takes away the Social Security here and Thune and Rounds take away Medicare”

    No one has but anyone’s Social Security. No one. No one has taken away your Medicare. No one.

    These are called lies. Not only are they lies, they are stupid lies. If you want everyone to think you are stupid keep posting such stupid lies.

  4. bearcreekbat 2017-12-28 14:15

    Wow, what a dilemma. Sarge says no cuts to SS or Medicare but . . . Who to believe, OS or an actual Republican Senator?

    Florida Senator Marco Rubio admits that the Republican tax cut plan, which benefits corporations and the wealthy, will require cuts to Social Security and Medicare to pay for it.

    To address the federal deficit, which will grow by at least $1 trillion if the tax plan passes, Congress will need to cut entitlement programs such as Social Security, Rubio told reporters this week. Advocates for the elderly and the poor have warned that entitlement programs would be on the chopping block, but this is the first time a prominent Republican has backed their claims.

  5. Roger Cornelius 2017-12-28 16:15

    republican House Speaker Ryan said last week that the new congress will take up cuts to Social Security, Medicare, Medicaid, and other social programs that affect millions of Americans.
    republican Senate leader Mitch McConnell said last week that the senate will not be entertaining any such cuts to Social Security and Medicare.
    Trump made another promise to be broken and lied about with his statement that he would not cut Medicare or Social Security.
    Who should we believe?

  6. OldSarg 2017-12-28 16:40

    But NOTHING has happened. You are all just chickens running around clucking about a falling sky. No more, no less.

  7. OldSarg 2017-12-28 16:42

    Additionally, if ANY cuts come to Social Security it will be to SSDI (which needs to be cut) which is draining your retirement accounts you paid into.

  8. Cory Allen Heidelberger Post author | 2017-12-28 17:19

    JLB, that would make sense. Basically, IRS is saying that if you have a note from the county or city saying, “You need to pay X in 2018,” you can prepay and deduct that amount right now.

    But be careful: deduct too much 2018 property tax from your 2017 return, and you could trigger the alternative minimum tax, which could negate your effort to save money.

  9. Roger Cornelius 2017-12-28 17:27

    There seems to be an unanswered question whether or not the full amount of 2018 is deductible?
    Anyone know the answer?

  10. bearcreekbat 2017-12-28 17:39

    As I read the comments OS, they seem to be quoting Republicans rather than shouting the sky is falling.

    When OS says nothing has happened yet, he seems to be correct. It is kind of like riding speeding in a car that is out of control and heading straight toward a tree – there has been no collision yet, but absent some action the collision seems inevitable (especially in light of the fact that the Republican driver said he was going to hit the tree).

    Finally, the idea that we should cut SSDI (the Social Security disability insurance program that covers individuals with significant work history who are no longer able to do their former job or any other job) seems a bit harsh, given the stringent qualifications to be eligible for disability benefits. For example, merely losing one arm or one leg in an accident is not considered a qualifying disability, unless there are additional diagnosed medical problems. It seems shortsighted and perhaps even a bit selfish, to advocate cuts to programs designed to help sick and injured Americans among us while cheering for tax relief for the rich and the able-bodied.

  11. Cory Allen Heidelberger Post author | 2017-12-29 07:38

    Roger, the IRS advisory seems to say that we can deduct any amount that is officially assessed and paid before January 1. However, the alternative minimum tax acts as a de facto cap. AMT is not the fixed $10K cap that the Trump Tax imposes on next year’s taxes; the AMT will kick in at different levels for different families depending on their total income and other deductions, but it does in effect mean that some families can’t deduct their entire assessed and prepaid 2018 property taxes.

  12. Caroline 2017-12-29 09:20

    While the property tax deduction cap won’t affect most South Dakotans, it will affect most all South Dakota farmers.

  13. Cory Allen Heidelberger Post author | 2017-12-29 12:08

    Good reminder, Caroline! I always think of property tax in terms of homeowners.

    However, the state and local tax deduction cap applies only to individuals. As long as farmers are expensing the tax on their ag land as part of their businesses, they can still deduct the whole property tax bill… because, again, in the eyes of our corporate-sponsored Congress, businesses deserve better treatment than individuals.

  14. denny henrikson 2017-12-29 12:56

    from Pennington County treasurer website, today 12-29-2017 11:55 AM:

    “Tax payments cannot be made until Jan 2 2018 12:00AM”

  15. Cory Allen Heidelberger Post author | 2017-12-29 13:21

    Which page of the Treasurer’s website has that notice, Denny? And is there any good reason the PennCo Treasurer wouldn’t take money today?

  16. jerry 2017-12-29 15:31

    I checked the Rapid City Journal and the only article I see is the one that declares an overwhelming response to paying the tax before the 1st of January 2018. They say that they are very busy processing the work. Now, I wonder this, who do you think those taxpayers are gonna be pissed at for having to shell out the money now when they were not expecting that drain on their resources? Just another point while canvassing the neighborhoods and your neighbors to rock the vote.

  17. jerry 2017-12-29 17:32

    mfi, roypublicans once again prove they cannot govern. They wanted to make things difficult for blue states, but they failed to realize that there are actual republican voters that will be hurt in this as well. Good news for Democrats though, these homeowners have checkbooks and they vote so those will both open up against those they feel have harmed them.

  18. JLB 2017-12-29 23:05

    I know at least at least one county was accepting payment. In fact, I was told it is common that people pay in advance even without the new tax bill. I don’t know why Pennington County would not allow it.

    Also, Texas law is different than SD.

  19. grudznick 2017-12-29 23:28

    Mr. H, I advise all Pennington County residents to not be messing with Ms. Sayler, as she is one salty dog.

  20. T 2017-12-30 06:32

    Paying for a new school in my county thru ag property taxes and those taxes are not deductible in 2018:

  21. T 2017-12-30 09:26

    State income tax and estate tax in SD
    Legalize marijuana and let the cash poor in

    Thx for link

  22. Cory Allen Heidelberger Post author | 2017-12-30 10:41

    T, aren’t you able to expense those property taxes on your business schedule and continue to deduct them?

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