The new tax law sharply restricts deductions for local property taxes, effective January 1. So the rush is on to beat the deadline.
For those Americans who are retired or disabled, or who are lucky enough to work in one of those industries that basically shut down between Christmas and New Year’s Day, this week is probably devoted to visiting relatives, returning gifts, watching football or basketball, or in general recovering from 2017. But there’s a new post-Xmas frenzy this year, focused not on malls or sports palaces, but on local tax offices. Thanks to a provision in the recently enacted GOP tax bill sharply restricting the deductibility of state and local taxes (SALT), homeowners in high-tax states are rushing to prepay their 2018 property taxes before December 31, so that they can be fully deducted on 2017 tax returns.
The new tax law restricted the SALT deduction to a total of $10,000 per year. In high-tax states, that will disallow a significant chunk of the deduction, particularly for high-income taxpayers with both income tax and property tax liability. (Many currently taking the deduction could also decide to stop itemizing, especially given the new system’s boost in the standard deduction for non-itemizers). The bill specifically prohibited prepayment of income taxes to avoid the new limits, which (like most of the tax provisions affecting individuals) will take effect on January 1, 2018. But it was silent on prepayment of property taxes. And so tax authorities in some jurisdictions — notably in New York, New Jersey, and California — are making prepayments possible this week. And driven by their accountants and tax advisers, more than a few are taking advantage of the opportunity, as The Wall Street Journal reports:
From Jersey City, N.J., to Oyster Bay, N.Y., residents are hustling to make early property tax payments on their 2018 bills to avoid a hit under the new tax bill passed by Congress.
“This tax bill has turned things upside down here,” said Steven Bellone, county executive of Long Island’s Suffolk County. “Tax offices across the county are getting inundated with calls.”
It’s happening in California, too:
Residents lined up before the doors opened Tuesday at the Sacramento County Administration Building to do something people aren’t normally so eager to do: pay their taxes early.
And the frenzy has extended to places not known as high-tax areas, but where unusually high real estate values mean hefty property tax bills:
In the Washington D.C. suburbs, WTOP found a line of hundreds snaked through a local government building in Fairfax, Virginia, looking to prepay their 2018 bills. Fairfax County officials, strained by the crowds, are telling people to wire the money instead.
Accommodating the prepayment rush has required some nimble action by local authorities to get 2018 tax bills available much earlier than is normally the case. New York governor Andrew Cuomo signed an executive order last week encouraging counties to accelerate the process of preparing local property tax bills so that they can be prepayed. But the New York county with the highest property taxes, Westchester, has admitted it won’t be able to get its act together before the New Year comes. In other words, this has become a political issue no one really anticipated, at a time of year when most people are not giving much thought to their local governments.
And there’s a catch to the whole scramble to prepay property taxes: The IRS has not definitively ruled on allowing 2017 deductions for prepayed 2018 taxes. If the agency ultimately disallows such deductions, there will be an awful lot of people who stood in lines this week at county tax offices who might as well have stayed home and watched minor college football bowls.