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:
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.