The new tax law set off a scramble of last-minute property tax moves at the end of 2017 as taxpayers tried to maximize their property tax deductions. However, not all of these prepayments were deductible, and not all taxpayers who waited lost their deductions. Here’s the latest IRS guidance on whether you can deduct your 2018 property taxes.
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What happened to the property tax deduction in the new tax plan?
The new tax plan sets a new $10,000 limit on deductions for property and income taxes. The two taxes have a single combined limit, so taxpayers in income tax states could lose all or part of their property tax deduction even if their property taxes are below $10,000. This limit goes into effect for 2018 taxes filed in April 2019.
Why were people rushing to prepay property taxes at the end of 2017?
Taxes for the 2017 calendar year still follow the old tax code. The old tax code had no limit on property tax deductions, so people with tax bills above $10,000 were trying to avoid the new limit by prepaying on or prior to December 31st, 2017.
Can I deduct property taxes I paid in 2018 on my 2018 tax return?
Yes, property taxes you pay in 2018 and future years will remain deductible. If you didn’t pre-pay your 2018 taxes in 2017, you didn’t lose the deduction.
The only exception is that beginning with tax year 2018; you can only deduct the first $10,000 of your combined property and state income taxes if they exceed that amount.
Can I deduct 2018 property taxes on my 2017 tax return?
The IRS announced two conditions that both must be met to deduct 2018 property taxes on a 2017 tax return.
- Paid in 2017. This means you physically made a payment by cash, check, or credit card no later than December 31st, 2017.
- Assessed in 2017. This means your local government assessed the property tax and sent you the bill no later than December 31st, 2017. If you made a payment before a bill was sent, your payment will not be deductible in 2017.
The purpose of these two criteria is to be consistent with the tax law’s intent that 2017 property taxes are deductible under the 2017 federal tax rules and 2018 property taxes are deductible under the 2018 federal tax rules.
What if I paid my 2018 taxes in 2017 and couldn’t deduct them in 2017?
If you pre-paid your taxes in 2017, and still have questions, it might be a good idea to speak with a tax professional about this deduction and whether or not it applies to your situation.
If you have other questions about how the new tax law impacts your family or business, you can ask a lawyer.