EDWARDSVILLE, Ill. – The clock is ticking toward the end of 2017 and heads are spinning in the face of the new income tax law.
Beginning in 2018, there will be a cap on the state and local taxes you can deduct on federal income taxes. People are now rushing to pre-pay 2018 property taxes, thinking they can deduct them on their 2017 federal returns and cash-in before that cap takes effect.
The IRS is now waving its finger at that trick.
There’s been a taxpayer stampede at the Madison County Treasurer’s Office in Edwardsville, Illinois.
Accountants are getting swamped with calls about whether that’s going to fly.
The Madison County Treasurer warns that prepaying is a roll of the dice. One thing is certain: it won’t work next year.
On federal income taxes beginning in 2018, a married couple filing jointly can still deduct real estate taxes, plus personal property taxes (like those paid cars in Missouri), plus state and local income taxes – but only up to $10,000 total.
“So, the overall limitation on your state tax deductions has gone to $10,000. That combines your personal property tax, your real estate tax, and your state income tax. Missouri’s rate is just over six percent. So that’s a hit,” said CPA Jennah Purk, Purk & Associates.
The IRS has just released an advisory warning that pre-paying taxes anticipated for 2018 that have not actually been assessed and imposed are not deductible.
“There’s no benefit to prepaying your 2018 property tax in Missouri because it’s not assessed yet. So by definition, it’s not going to be deductible,” Purk said.
Still, the new Trump tax plan could more than make up for it, she said.
“Largely, this is a good tax act. At least 80 percent of taxpayers should pay less tax dollars next year than they did this year,” Purk said.
Pre-paying seems like a good bet in Illinois because bills for 2017 property taxes typically aren’t sent out until June of 2018.
Judging from the IRS advisory, it seems like a no-go.