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Prepaid 2018 Real Property Taxes as a Tax Strategy | Tax Lawyers News

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The Tax Cuts and Jobs Act of 2017 radically changed the US tax system with respect to deductible state and local income taxes, including real property taxes. Starting tax year 2018, real estate, person property, income taxes and sales taxes are deductible only up to $10,000. This means that people with high property taxes have a big problem – they have an expense that is no longer deductible. A question arises for tax attorneys – can these taxpayers use prepaid 2018 real property taxes to lower their 2017 tax liability?

This issue of prepaid 2018 real property taxes is the subject of the latest IRS advisory issued on December 27, 2017. Let’s explore this advisory in more detail.

Prepaid 2018 Real Property Taxes That Were Assessed and Paid in 2017

The IRS advised that prepaid 2018 real property taxes may be deductible in 2017 under specific circumstances. In particular, the IRS stated that, in situations where 2018 real property taxes were assessed and paid in 2017, such prepaid 2018 real property taxes may be deductible.

Prepaid 2018 Real Property Taxes That Are Not Yet Assessed But Paid in 2017

On the other hand, if your real property taxes for 2018 were assessed only in 2018, the prepayment in 2017 will not be deductible in 2017. State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.

Examples of Deductible and Non-Deductible Prepaid 2018 Real Property Taxes

The IRS provides the following examples of deductible and non-deductible prepaid 2018 real property taxes:

Example 1: Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018. On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018. Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.

Example 2: County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 – June 30, 2018. County B intends to make the usual assessment in July 2018 for the period July 1, 2018 – June 30, 2019. However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year. Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018.

PATH Act and New January 31 Filing Deadline | Tax Attorney News

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On October 28, 2016, the IRS reminded employers and small business owners of the new January 31, 2017 deadline as a result of the PATH Act.

PATH Act’s Impact on the Filing Deadlines for Forms W-2 and 1099-MISC

In the past, employers typically had until the end of February, if filing on paper, or the end of March, if filing electronically, to submit their copies of these forms. Starting 2017, the new strict W-2 filing deadline of January 31, 2017, will be enforced.

The reason for this change in the deadline is The Protecting Americans from Tax Hikes (PATH) Act of 2015. According to PATH, the employers will now have one filing deadline on January 31 for both employee copies of Forms W-2 and the filing of Forms W-2 with the Social Security Administration.

Moreover the PATH Act also affects the filing deadline for certain Forms 1099-MISC, particularly those reporting amounts in Box 7, Nonemployee Compensation. These Forms 1099-MISC will now also have to be filed on January 31, 2017.

PATH Act’s Impact on Requesting Form W-2 Filing Extension

The PATH Act also has an impact on the availability of Form W-2 filing extensions. Starting 2017, only one 30-day extension to file Form W-2 will be available and this extension is no longer automatic. If an extension is necessary, a Form 8809 “Application for Extension of Time to File Information Returns” must be completed as soon as you know an extension is necessary, but no later than January 31.

PATH Act May Delay Some Refunds Until February 15

The other major impact of the PATH Act that will be felt by many Americans is the potential hold on their refunds until February 15. The PATH Act requirest the IRS to hold the refund for any tax return claiming either the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC); the IRS must hold the entire refund, not just the portion related to the EITC or ACTC.

PATH Act is Meant to Help IRS Fight Fraud and Spot Tax Return Errors

The PATH Act was enacted by Congress and signed into law in December of 2015 in order to make it easier for the IRS to detect and prevent fraud associated with tax refunds. The idea is to give the IRS more time to identify fraudulent refunds through accelerated W-2 filing deadline for employers and holding refunds (which are frequently subject to fraud) until February 15.

Of course, the additional time will allow the IRS to also spot any errors on the tax returns.

Tax Deadlines Extended for Certain Mississippi Storm Victims

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As a result of the FEMA’s state of disaster declaration, certain Mississippi Storm victims will now benefit from the extension of the 2015 tax return filing and tax payment deadlines. In particular, the residents of Benton, Coahoma, Marshall, Quitman and Tippah counties (as well as other counties that may be added at a later time) will have until May 16, 2016 to file their 2015 tax returns and pay any tax due. All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief.

The extended deadline also affects the estimated tax payments; the IRS will waive all penalties associated with these deadlines for Mississippi Storm victims. Individual Mississippi Storm victims will now be able to benefit from this extended deadline with respect to January 15 and April 18 deadlines for making quarterly estimated tax payments.

Business Mississippi Storm victims will also benefit from this deadline extension, including February 1 and May 2 deadlines for quarterly payroll and excise tax returns. Furthermore, the deadline extension applies also to March 1 deadlines for farmers and fisherman who are Mississippi storm victims and choose to forego making estimated tax payments.

Additionally, the IRS will waive late-deposit penalties for federal payroll and excise tax deposits normally due on or after December 23 and before January 7 if the deposits are made by January 7, 2016. Details on available relief can be found on the disaster relief page on IRS.gov.

The IRS will automatically provide filing and penalty relief to any taxpayer with an IRS address of record located in the Mississippi disaster area. Thus, Mississippi storm victims need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

Furthermore, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the Mississippi disaster area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227.

Finally, individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred, or the return for the prior year. See Publication 547 for details.