2017 Fed Taxes & DuPage County Property Tax Prepayment (Chicago, Lee: sale, real estate)

[RJA29]

Hi Western suburbanites -

Has anyone effectively received an approval by the IRS for their 2017 tax return that included DuPage County property taxes paid in 2017 for the 2017 FY assessment?

This was the much bandied about "prepayment" of taxes usually paid in 2018, but paid in 2017 after the passage of the tax bill. Will property tax prepayments matter in all counties?

Just wondering what I'm in for when I file!

Thanks

[wjj]

Originally Posted by RJA29

Hi Western suburbanites -

Has anyone effectively received an approval by the IRS for their 2017 tax return that included DuPage County property taxes paid in 2017 for the 2017 FY assessment?

This was the much bandied about "prepayment" of taxes usually paid in 2018, but paid in 2017 after the passage of the tax bill. Will property tax prepayments matter in all counties?

Just wondering what I'm in for when I file!

Thanks

First, IRS does not "approve" returns. Returns are filed and the ministerial filing is accepted but the substance of what is contained in the filed return can be challenged for 3 years (sometimes up to 6 years). Any audits of the deduction would not happen until 2019 or 2020. Other countries do it differently, but that is the process in the US "voluntary" system.

Also, this is not a big issue where taxes are assessed currently but paid a year later like in the Chicago area. Prepaying or deferred paying of real estate taxes has been a tax planning strategy for years. Also, when you sell a house you have to credit the buyer with the prorated real estate taxes for that year even though those taxes will not be paid until the following year by the new owner. Those taxes are deductible in the year of sale by the seller and are never deductible by the buyer. Same thing as prepaying from the seller's perspective.

Other parts of the country assess and bill real estate taxes differently so the IRS guidance had to be general since it was nationwide and there are many different ways that real estate taxes are assessed and paid. For example, in Lee County FL where we have a second home, real estate taxes for 2017 were assessed in 2017 but are due in March 2018. However, homeowners are offered a sliding discount starting at 5% if they pay early starting in November. Those taxes are deductible in the year paid once they are assessed. So it is easy to plan, especially for those in the AMT. Other areas of the country assess and collect currently and do not pay in arrears like we do here. The IRS notice also stated that 2018 income taxes could not be prepaid and deducted because the taxes had not yet been assessed because the related income had not yet been earned. That would apply in all states.

[RJA29]

Originally Posted by wjj

Other parts of the country assess and bill real estate taxes differently so the IRS guidance had to be general since it was nationwide and there are many different ways that real estate taxes are assessed and paid. For example, in Lee County FL where we have a second home, real estate taxes for 2017 were assessed in 2017 but are due in March 2018. However, homeowners are offered a sliding discount starting at 5% if they pay early starting in November. Those taxes are deductible in the year paid once they are assessed. So it is easy to plan, especially for those in the AMT. Other areas of the country assess and collect currently and do not pay in arrears like we do here. The IRS notice also stated that 2018 income taxes could not be prepaid and deducted because the taxes had not yet been assessed because the related income had not yet been earned. That would apply in all states.

Not asking about income taxes here, just real property taxes. The IRS notice seems to be vague enough that there might be some confusion on a municipality to municipality level. When I called and spoke to an IRS official, she stated that real property taxes would be determined by assessment date, even if it was usually paid in arrears (but, of course, not done so in this instance).