For many New Jersey residents, what was supposed to be a quiet holiday week turned into a mad dash to get to the local tax office, in order to prepay property taxes for 2018.
As we’ve been reporting, residents are prepaying their taxes in order to get out in front of changes in the federal tax law. As of Jan. 1, property tax deductions will be limited to $10,000 on federal income tax returns. Many people pay much more than that.
Since President Donald Trump signed the tax bill into law last week, there’s been some confusion as to whether the IRS will actually allow these prepayments to be deducted in the 2017 tax year. We’ve heard stories of residents trying to prepay an entire year of property taxes, if not more. This is happening in several states known for high property taxes, and not just New Jersey.
In order to try to clarify what is and is not allowed, the IRS issued an advisory late Wednesday, with specific examples of what would be permissible.
“I think the key issue is, are the amounts they’re paying, have they been billed by the township, or assessed is another term that’s used, or are they paying estimated,” explained Ralph Albert Thomas, the CEO and Executive Director of the New Jersey Society of CPAs. “Based on my reading of the IRS advisory, any estimated amounts would not considered to be deductible by the IRS.”
So for instance, residents who are trying to pay an entire year of taxes, or trying to pay without an actual tax bill, might be out of luck. Thomas advises residents to speak with their accountant or tax advisor. Everyone’s financial situation is different, and we’ll see if there are any additional clarifications from the IRS.
Meantime, there’s more twists and turns to the tax story. Late Thursday, Congressman Leonard Lance, who broke with his party and opposed the Republican tax bill, said he plans to introduce legislation to overturn the Internal Revenue Service ruling, and allow taxpayers to deduct all of their 2018 prepayments from their 2017 income tax returns.