Proposed Legislation Would Allow Deduction for Property Taxes Prepaid in 2017

Posted on February 15, 2018

In a previous blog, we noted that the IRS signaled that it will likely disallow the deduction of prepaid state and local real property taxes in 2017 if the tax liability issue had not yet been assessed when it was paid.

Because most property taxes that were prepaid in 2017 had not yet been assessed (i.e., property tax bills were not yet sent out), those people who stood in line to prepay their property taxes before the end of 2017 may have wasted all of their time and some of their money. In response to this, recently proposed bipartisan legislation introduced in the House would allow the full deduction for property taxes for 2018 that were prepaid in 2017.

If the legislation ultimately becomes law, individuals who prepaid their 2018 property taxes in 2017 would be allowed a full deduction for their property taxes on their federal Form 1040 tax return for 2017 when it is filed. Further, the individuals would not need to show that the property taxes were assessed before 2018.

We believe that the proposed legislation should become law because the new tax legislation was signed into law on December 22, 2017, and because the IRS did not comment on the deductibility of the property taxes until December 27, 2017, only four days before the end of 2017. What do you think?