IRS: 2018 property taxes deductible if assessed and paid in 2017

The Internal Revenue Service (IRS) announced Wednesday that homeowners can deduct their prepaid 2018 state and local property taxes on their 2017 returns if the taxes are assessed and paid this year, postponing possible hikes from the tax-reform legislation signed into law this month.

The announcement came after swarms of homeowners lined up at tax offices around the country attempting to prepay their 2018 taxes before the end of the year, allowing them to avoid a new $10,000 cap on the amount of state and local taxes that can be deducted from income before determining federal tax liability.

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President Trump signed the tax reform bill into law last week, culminating a major legislative victory for congressional Republicans. The bill stated that income taxes could not be paid early, but remained vague on whether the same ban applied to property taxes.

On Wednesday, the IRS issued a statement saying homeowners could prepay 2018 property taxes only if state laws allowed them to be assessed before the year’s end.

New York Gov. Andrew Cuomo (D) became the first governor to act specifically on this provision in the tax bill last week, saying his actions were meant to “circumvent” the new law, which he said deliberately targeted Democratic-controlled states.

“You are damned right,” Cuomo said. “This is now red vs. blue. They are using New York, California and the other blue states to finance the tax cuts in red states.”

The $10,000 cap and most other tax changes in the new law take effect in 2018, so they do not apply to the tax returns that people will file this spring for 2017.

“I’m getting swamped with many, many calls, usually one an hour, from people who want to prepay their taxes,” one New York tax official said last week.

—Naomi Jagoda contributed.