Harrisburg, PA — Last week’s passage of a federal tax plan has led some Pennsylvanians to attempt to pay 2018 real estate taxes early, before the new tax plan takes effect on Monday.
The new federal tax plan places a cap on the allowable deduction for state and local income, sales, and property taxes at $10,000, meaning certain taxpayers who pay their 2018 real estate taxes now could save substantially by utilizing the current unlimited deduction on their 2017 federal income tax returns.
A deduction for any prepayment of 2018 state and local income taxes is not permitted in the new federal tax plan. However, the new federal law does not appear to prohibit a deduction for prepaid 2018 real estate taxes.
Pennsylvania law does not specifically address the situation that many in the commonwealth are now facing due to federal tax changes that now limit deductions beginning in 2018. While the commonwealth cannot compel county and local governments to accept prepayments of 2018 real estate taxes, local taxing authorities should take all appropriate action to assist tax payers adversely impacted by the changes in federal tax law.
On December 27, the Internal Revenue Service (IRS) issued an advisory on the pre-payment of property taxes that said in part:
“In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not 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.”
The IRS website provides more information and examples.
Taxpayers attempting to prepay taxes due in 2018 should consult with an accountant or tax professional, Department of Revenue Secretary Dan Hassell and Department of Community and Economic Development Secretary Dennis Davin said today.
“We encourage every taxpayer to make the best financial decision for their individual situation,” Hassell said. “Having a conversation with the person who prepares your tax return is an important step that can help taxpayers before they make a final determination.”
“Changes in federal tax law that take effect January 1, 2018, have caused great concern across Pennsylvania, and rightly so,” said Davin. “It is important that taxpayers do what they can to financially prepare themselves for changes they will see when it comes time to file their federal return in April 2019.”
This information does not constitute tax advice and does not address whether the IRS will accept a deduction for prepaid 2018 real estate. Individuals interested in prepaying their 2018 real estate taxes should consult with their tax professionals.
MEDIA CONTACTS: David Smith, DCED, 717-783-1132 or 717-736-3199
Jeffrey Johnson, Revenue, 717-787-6960
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