12/29/17 update: The IRS just put out an advisory notice that you can only pay your 2018 tax bill & deduct the payment if it was assessed in 2017. So far, only DC has asserted that they’ve already issued assessments (in October) and they believe the prepayment will be deductible.
This is a new announcement and each county/city will need to respond to it.
So, whether the prepayment is tax deductible or not is now a gray area.
It is possible that only some of the payment will be deductible (all local counties and cities run a fiscal year that goes partially in 2017 and partially in 2018).
- DC has issued assessed values for 2018 and has stated today they believe homeowners can prepay their taxes and deduct the payment in their ’17 bill.
- MD has already issued assessed values for 2018 (you can look up the assessed value for 2018 on the DC tax bill, and if you look up your MD state tax bill you can see it there as well). But Montgomery County is now stating that the property assessment is not issued until July, so perhaps 2018 prepayment in MD will not be deductible in 2017. I imagine other counties will feel similarly.
- Virginia hasn’t assessed 2018 yet. My opinion is that prepayment in Virginia will not be deductible unless this new IRS advisory is challenged in the courts. I do think a court challenge will likely occur.
I have read several sources in the last several hours and now think that this Post article explains it best:
Knowing the above, if you do wish to prepay your tax bill, understanding it may not be deductible, these jurisdictions in the DMV allow prepayment of your 2018 property tax bill:
If you live in Montgomery County, MD there are extremely specific instructions on making the payment. Please read them thoroughly here!
Prince George’s County, MD, Frederick County, MD, & Carroll County MD will not allow prepayment.
I am not a tax advisor, so please consult your accountant for specific questions about tax deductions and how the new tax bill affects you.
After the passing of the new tax bill, homeowners may consider prepaying their 2018 tax bill, in 2017. This is because starting with 2018 income taxes, individuals will only be able to deduct up to $10k total of property taxes and local income taxes.
Many homeowners will owe more than $10k in combined state income tax and property tax in a given year. By paying your 2018 property tax bill before December 31, 2017, you may be able to deduct this on your 2017 income tax return. Whereas the new tax bill has disallowed prepayment of your income taxes, it’s up to the state and IRS to decide whether prepayment of property taxes is allowed. See the beginning of this post for more explanation.
To pay your 2018 tax bill in 2017, it requires estimating your tax obligation. This is because the taxes due in 2018 are not yet billed. Many jurisdictions are recommending that you estimate your tax bill off your 2017 tax bill. Over-payment will likely be credited to future tax bills (don’t expect the jurisdiction to return the funds), and underpayment will mean you should expect to pay the additional taxes when the bill comes out next year.
To find and pay your tax bill, you will want to click on the appropriate link at the top of this post and type in your address.
Most homeowners escrow their property taxes and so will be paying a bill that would normally be disbursed from their escrow account. Learn about escrow here. It’s not possible to ask your mortgage servicer to disburse money from an account for a bill that hasn’t been issued yet. So, you will need to prepay the taxes with your own savings. If you prepay, when the next tax bill comes out (In DC it’s in March, or in VA/MD for most homeowners it’s in June), you will likely not have a property tax amount due on that bill. So, you will want to ask your servicer to perform an escrow analysis. With an escrow analysis, the servicer will determine there is an overage in your escrow account and you may receive a check a few weeks later disbursed from your escrow.
If you have specific questions about escrow, I recommend you call your servicer. If First Home services your loan, the phone number is 855 434 7005. Please note that I don’t have the ability to view your escrow account, whether or not First Home is your servicer.
DC specific info to calculate the tax obligation more accurately:
If you live in the district, you may consider instead of paying the amount of your 2017 tax bill, to pay .85% of the 2018 taxable assessment. This will be slightly more accurate than your 2017 bill. So for instance if your 2018 taxable assessment is $500,000, the estimated tax obligation is $4250. This is not going to be an accurate number, but it’s a reasonable estimate.
For district homeowners, if you purchased in 2017 and the last tax bill was issued in a previous owner’s name, you may choose to pay .85% of the purchase price instead of the taxable assessment. But if you live in the property you purchased, and applied for the homestead deduction at settlement, then you can subtract $72,450 from the sales price before calculating .85%.
Pre-Qualify Now: https://ajaffe.gofirsthome.com/startapp
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