For households rushing to prepay property taxes before a new cap on deductions takes effect, the IRS released some good news Wednesday: In many cases, it will allow such a maneuver.
That had been up for debate, because the new tax law was silent on such a scenario, even though it specifically prohibits prepaying 2018 state or local income taxes this year and claiming them as an itemized deduction for 2017.
By allowing some prepayment of property tax, itemizing households could save money on their 2017 federal income taxes. Starting next year, households will be limited to an annual combined deduction of no more than $10,000 in state and local income, sales and property taxes.
When can I prepay my property tax and not be subject to the $10,000 cap?
If your county has already assessed your taxes you can pay now and deduct the full amount on your 2017 federal tax return.
For example, property tax bills generally go out in the fall and cover a fiscal year, July 1, 2017, to June 30, 2018. Half of the taxes are generally due by early December and the other half due by April.
The IRS will allow you to pay that second installment before the end of the year and deduct the entire amount, something that has always been possible.
When would I be subject to the $10,000 cap even if I prepay?
If your county has not assessed your property taxes. The IRS gave the following example: If a county was allowing households to prepay their 2018-2019 property taxes in 2017, but those taxes wouldn’t actually be assessed until 2018, then you can’t deduct those prepayments on your 2017 tax return.
L.A. County residents are not allowed to prepay their 2018-2019 property taxes.
If I want to prepay, what should I do?
First, talk to your tax adviser. There are complexities to the tax changes to sort out before deciding whether paying early would be a prudent financial move.
Also, if you plan to take the standard deduction in 2017, you can’t deduct property taxes anyway.
If you still want to prepay your property taxes and pay them yourself, contact your county treasurer-tax collector's office.
L.A. County homeowners can visit L.A. County’s Property Tax Portal to pay online or get information on how to pay by mail, in person or over the phone. People with questions can also call the office of L.A. County’s treasurer and tax collector at (888) 807-2111.