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The IRS Threw Shade on Prepaid Property Tax Deductions, But Don't Request a Refund Yet

Posted by Mike Anderson Posted on Dec 30 2017
For many of our clients, our advice has been to go ahead and prepay property taxes before the end of 2017, if you can swing it, and if you are clearly not subject to AMT, because we knew for certain that state and local taxes will be limited to a deduction of $10,000 in 2018. Our position was that you may as well have paid early in the hopes it would be deductible.
 
As you may have read, the IRS announced that it will not allow this if the tax has not yet been assessed. Unfortunately, most prepaid property taxes in the Washington, DC area will fail this requirement because they will not actually assess property taxes until the summer of 2018.
 
At least one locality has offered refunds to residents who request them in writing. However, there are several reasons you might want to wait this out.
 
First, the I.R.S. guidance is not a legal ruling, and was only based on limited precedents. 
 
Additionally, the term "assessed" was not defined in the IRS announcement. Nor has it been legally defined by the legislation or by any legal rulings.
 
We also believe it is possible that the anger and confusion over this issue could result in further mitigating announcements by IRS, further legislation by Congress, court decisions, or other creative workarounds by state and local governments attempting to circumvent the IRS announcement.
 
For these reasons, you should consider holding off for several weeks, or even months, before requesting a refund.