There has been substantial information in the news lately regarding prepaying next year’s real estate taxes in order to accelerate a tax deduction into 2017.  The IRS issued an advisory on December 27, 2017 basically stating that making a “deposit” for taxes to be assessed in the future does not constitute a current deductible expense for income taxes.  Here are our observations for paying real estate taxes:

  1. For Wisconsin residents, generally consider paying the real estate tax bill you received in early December by the end of the year.  However, if you are subject to alternative minimum tax in 2017, there may be no advantage to doing so.
  2. For residents of other states, it depends on the assessment period, and when you actually have a legal obligation to pay the real estate taxes.
  3. Just because your municipality has a method for making a deposit of future real estate taxes does not make such payment deductible in 2017.

Everyone’s tax situation is unique.  Please consult with our tax professionals to understand what options provide the best tax benefits to reduce your income tax burden in both 2017 and 2018.

IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017

Pat Wirth, CPA, Partner