Prepayment of Property Taxes Under the New Tax Law

An article published in the Wall Street Journal yesterday highlighted the issue regarding prepayment of real estate and property taxes before year end. The new tax law enacted specifically excepts the prepayment of 2018 state and local income taxes from being deducted on 2017 income tax returns, however, there is no such language in the new law regarding the deduction of property taxes. Late yesterday, the IRS issued a directive that is inconsistent with the new law as written, and is taking the position that they will disallow the deduction for prepayment of property taxes that have not been assessed in 2017. There were editorials and professionals on TV last night challenging the authority and position being taken by the IRS in the directive issued last night. Governors in some states are considering issuing executive orders to facilitate the prepayments of 2018 property taxes in 2017 and treating them as assessed in 2017. New York’s Governor Cuomo has already issued an executive order.For Tennessee residents, Tennessee assesses property taxes in the Fall of each year with an initial due date of October 1, 2017, even though they allow up until February 28, 2018, before charging interest and penalty. If the 2017 assessment is paid by December 31, 2017, then the amount is deductible. Unless Governor Haslam issues an executive order similar to that of Governor Cuomo, prepaying 2018’s Tennessee property taxes may not be advisable under the new IRS directive.As always, we encourage you to consult your tax advisor to determine how this impacts you.We will continue to keep you up to date as more information becomes available. For additional information, or if you have specific questions or concerns, please contact George Wilmoth or any of your trusted advisors at HHM, today.