Homeowners Debate Whether To Prepay 2018 Property Taxes

Dec 29, 2017
Originally published on December 29, 2017 8:15 am
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Homeowners across the country are scrambling to prepay their 2018 property taxes. Starting on Monday, a new rule comes into effect as part of the Republican tax overhaul. On your federal taxes, you'll only be able to deduct up to $10,000 in what you pay in state and local taxes. And many people thought they saw a way to beat the clock here. They have tried to prepay their property taxes fast so they could deduct them on their 2017 taxes. But the IRS seemed to suggest Wednesday that they should not be doing this. And that has left many people in legal limbo. With time running short, tax collectors are scrambling. Here is Lidia Leszczynski, a tax collector in Montclair, N.J.

LIDIA LESZCZYNSKI: It's been very chaotic. I said it before. It's like a revolving door. People coming in. People going out. We are getting phone calls nonstop. I mean, the phones are - literally they just don't stop. Today, we had a line of people, you know, waiting for us at 8 o'clock when we don't even open until 8:30. And people just have a lot of questions. And they are here, you know, with their checkbooks and ready to write out the payments. Yeah, it's just been traffic nonstop.

GREENE: All right, people have a lot of questions. Let's try to answer as many as we can with David Harrison. He has been covering this story for The Wall Street Journal. David, thanks for coming in.


GREENE: This sounds like a total mess.

HARRISON: Yeah, it seems that way. It seems like a number of jurisdictions - a number of tax collector's offices - people are lining up, as we've just heard. And it seems like this is - you know, people are really trying to pay in advance, so they can deduct these taxes from their 2017 federal tax returns.

GREENE: Which seemed like something that would make sense, as people heard about the Republican tax bill. But the IRS feels differently. They issued this new guidance on Wednesday limiting who could do this. What exactly is the IRS saying here?

HARRISON: So the IRS is saying you can only do this - well, first of all, if your locality allows it, which is not the case everywhere, and secondly, if you've already been assessed - if your property has already been assessed for 2018. Now, there's some question. Like, what exactly does assessed mean? Do you have to have received a bill, or is simply an assessment enough? And then there's a broader question of is the IRS even right in its determination. I mean, I talked with some tax lawyers who say that you can prepay what you estimate you would owe even if your property hasn't been assessed. And that might still pass legal muster. So essentially what the IRS has done, in a way, has made this much more complicated and more confusing.

GREENE: Because, I mean, the Republicans have been talking about it for a long time - that they're going to simplify the tax code, which at least in this one instance right now it's seeming like very much the opposite.

HARRISON: Yeah, exactly. And so what you have written - so what you have is a - this tax bill was signed into law just a few days ago, and it goes into effect a few days from now - and as you know, as all things related to taxes are, very complicated and involves, you know, rules and laws and all kinds of jurisdictions. And so it's going to take a while to sort everything out.

GREENE: So if I'm a homeowner, you are saying that local communities really have the ultimate control here - that even if the IRS said you can in theory prepay these taxes, my city or locality could say like, no, we're not going to let you come in and do this.

HARRISON: Yeah, that's right. And cities and localities across the country are sort of taking different approaches here. So some places are saying, we will allow you to prepay your taxes but only those taxes for which you have received a bill because a lot of places, you know, bill on a quarterly basis or bill twice a year. So some of these places are saying, you received a bill, fine. Come on in. Other places are saying, you know what? Just come on and pay what you think you might owe. That's the case, say, in Fairfax County, Va.

GREENE: Just come up with some kind of estimate?

HARRISON: Come up with some estimate because, you know, you've paid - presumably you've paid your property taxes the last few years. You have a vague idea of what you might owe. You're not intending to move. So you sort of get - have a pretty good sense. And then some other places are saying, you know, just - well, we haven't billed you yet, but we've assessed you. And so based on that assessment, you can come in and pay. That's the case in D.C. So all these places are taking a very different approach. There's some places as well that have already billed for the full year 2018. So there, they're saying, you know, come on in. Pay your taxes.

GREENE: And maybe it will work, or the IRS will say that you can't do this. I mean, it's all an open question.

HARRISON: Exactly. And so the question is, you know, once we figure out what exactly the IRS means, once this has been sorted out - some of these people have already paid. And they paid before the IRS issued its guidance, so are they all of a sudden going to get audited? Are they all in trouble? Or suppose - imagine you paid Tuesday before the guidance. Your neighbor wants to pay today after the guidance. So you're in somehow different legal situations.

GREENE: So in just a few seconds, I mean, any last-minute advice for people who have no idea what to do here.

HARRISON: As always with taxes, call your adviser.

GREENE: OK (laughter), we should say you are not an adviser. You are a reporter.

HARRISON: I am not in the least.

GREENE: So no one should take your advice necessarily. Call your tax adviser. All right, David Harrison is a reporter for The Wall Street Journal. Thanks for coming in.

HARRISON: Sure thing. Thank you. Transcript provided by NPR, Copyright NPR.