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Review of IRS Advisory on PrePayment of Real Property Taxes

Thursday, December 28, 2017

Late on December 27, 2017, the IRS issued a news release in the form of an IRS Advisory, “Prepaid Property Taxes May be Deductible in 2017 If Assessed and Paid in 2017.”  In short, the IRS Advisory states, “State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.

For the District of Columbia, real property taxes for Fiscal Year 2018 (October 1, 2017 through September 30, 2018) are assessed, by law, as part of the approved budget approval process for the new fiscal year which begins October 1. At that time, the tax rate is set and the liability is established for all properties for the fiscal year. Taxpayers also received Notice of Proposed Assessments for Fiscal Year 2018 as of March 1, 2017. Taxpayers must make payments on or before March 31, 2018 and on or before September 15, 2018. The billings for the first half of the fiscal year will be sent no later than February 28, 2018 and for the second half of the fiscal year on or before August 15, 2018. The attached IRS Advisory provides two examples for when a taxpayer can and cannot deduct prepayment of these taxes in 2017. Based on a legal review by the Office of Tax and Revenue, the District falls under Example 1 which indicates taxpayers prepaying their 2018 tax bills in 2017 can deduct the tax payments on their 2017 tax return. Pursuant to the IRS Advisory, since the District both assessed properties and set real property tax liabilities in 2017, there is a basis, if a taxpayer chooses to prepay real property taxes by December 31, 2017, for the taxpayer to claim a deduction on his or her 2017 return.

The Office of Tax and Revenue continues to recommend that taxpayers consult with their own tax advisors before making any prepayments. They may also need to coordinate payments with their mortgage company.

How to PrePay Real Property Taxes

If a taxpayer chooses to prepay property taxes given their federal tax situation, they may choose to base their property tax prepayment on the amount paid in the previous half-year. The prepayment can be for the entire fiscal year (October 1, 2017-September 30, 2018).  Once the prepayment for 2018 is made in 2017, adjustments based on the corrected amount will be included in subsequent billings. These adjustments may be due to factors such as the homestead deduction, senior deduction, or other changes that impact billings.

Taxpayers can prepay online by going to the OTR website at www.taxpayerservicecenter.com and clicking on the prepay 2018 tax banner. They can then put in their property information and, after it is selected, click the “Pay Here” button at the bottom of the page and then pay by e-check. They will need their checking or savings account number and routing number. This option is available until midnight on December 31.  

The other option is to go to any District Wells Fargo branch where they can pay via check or credit card. They will need to bring their latest property tax bill so their account is credited appropriately. This option is available until close of business for the particular branch on Saturday, Dec 30.