Insights: Article

Prepayment of Minnesota Property Taxes

December 29, 2017

We are getting a number of questions as to whether the IRS will allow a deduction for the prepayment of 2018 Minnesota property taxes prior to the end of 2017 based off the proposed taxes in the Truth-In-Taxation statements issued in November 2017.


Yesterday, the IRS issued a news release on prepaying 2018 property taxes (IR-2017-210). The news release limited the deductibility of the prepaid 2018 taxes to only those taxes that are assessed prior to the end of 2017:

  • Example 1: Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017, to June 30, 2018. On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017, and the second installment due Jan. 31, 2018. Assuming the taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.
  • Example 2: County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017, to June 30, 2018. County B intends to make the usual assessment in July 2018 for the period July 1, 2018, to June 30, 2019. However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year. Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018.

The Truth-In-Taxation statement says on the bottom that is it not a bill, and therefore, may not be a final fixed obligation. But Minnesota assessors were required under Minnesota law to finalize all levies and submit the information for property taxes based on a 2017 assessment but payable in 2018 to the Minnesota Department of Revenue by December 28, 2017, resulting in the final fixed obligation for MN property tax to have been determined as of December 28, 2017.  

The IRS has not defined “assessed,” and the news release mentioned above is non-binding so it is difficult to come to a decisive conclusion on which prepaid taxes are deductible. However, we believe an argument can be made that Minnesota property tax paid in 2017 based on the Truth-In-Taxation statement received in November 2017 can be deducted in 2017. This position, while supported by the property assessment process flow for Minnesota property taxes, could be challenged by the IRS. Each taxpayer deciding to claim the deduction should assess their tolerance for this potential risk.

There has been a flurry of activity by state and local governments around the country to change the property tax laws to qualify these type prepayments as deductions. Unfortunately, those actions may come too late, as time is running out to claim the deduction by making a payment prior to December 31, 2017.  

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