Confusion rules over cities and suburbs, as homeowners are weighing the impact of high property taxes on their property in 2018, so that a bigger bill could be avoided, as Trump’s new act takes full effect.
The taxpayers, in a worry to avoid taxes of 2018, are hurrying now to pay their taxes so that the raised taxes could be avoided and the full amount could be deducted before the tax change goes into effect. The new limit of $10,000 is placed on the local and state tax deductions that also include property taxes.
The elected officials in the places, like New York and Washington D.C. are also highlighting the pre-payment option that is provided. Long lines were witnessed in some areas, as people gathered outside the government offices to prepay in some communities.
However, in reality, the people pre-paying would not be benefited in any way while the number simply goes up as a result of guidance that the IRS had issued on Wednesday.
“There are probably more people that think this is good for them than is actually the case,” said Ryan Ellis, who is a conservative tax-reform advocate and an IRS certified agent.
As the new tax Law bans the taxpayers from prepaying their taxes in the local or state income taxes, it is kept silent on the prepaying of the Property tax issues.
Only in their statement on Wednesday did they state that the prepaid property taxes are only deductible in a few specific circumstances only.
The agency further said that the taxes are deducted in 2017 tax returns only if the property tax is assessed and paid, before the end of 2017. This may result in taxpayers who are not yet billed in their hometown or county for not getting any deductions in their property taxes next year.
Several tax experts went on to say that the guidance was not clear about what in reality counted as an assessment.
“I don’t think this is the end of it. I think this will be an open topic and there will be some litigation,” said Nicole Kaeding, an economist at the Tax Foundation. While several others said that they were surprised by the rigidity in position IRS held over the subject.
“They chose the most restrictive nit-picky way to look at this that is the least taxpayer-friendly way to look at this,” Ellis said.
Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, said that many of these experts had thought that the payments are eligible for deduction if the local government authorizes the payments and the amount to be paid could be reasonably determined in good faith.
“I was surprised by the IRS position, which I thought was pretty aggressive,” he said.
Leah Robinson, leader of the state and local tax group for Mayer Brown, said, “even if you have to make the assessments, you could argue that the governors’ statements requiring localities to accept these payments are de-facto assessments.”