Property tax prepayments spike

Jump spurred by new tax bill rules; unclear if IRS will allow the headstart

Sweeping changes to the U.S. tax code have some Johnson County residents rushing to do a task that most would typically put off as long as possible — paying property taxes.

On Wednesday, more than two dozen Johnson County residents went to the county treasurer’s office to prepay property taxes due in 2018 with the hope that paying their taxes early will result in a better tax return next year.

But a clarification issued by the IRS on the federal tax changes signed into law Dec. 22 makes it much less likely that those efforts to prepay and get a larger deduction will be successful.

The IRS said Wednesday that some homeowners who prepay local property taxes due in 2018 will be able to claim the deduction on this year’s returns, but only if the taxes already have been assessed and billed. People can’t guess at what next year’s assessment might be, pay it now and claim a deduction for that amount. If that statement from the IRS stands, Johnson County residents won’t benefit from paying early because property taxes haven’t yet been billed.

“A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017,” the IRS said on its website.

The issue came to light across the country as financial advisors tried to interpret the new federal tax law that does away with many of the income tax deductions in the coming years and give their clients advice on how to maximize their money yet this year, before the law changes.

If the IRS stance is successfully challenged, though, Johnson County homeowners who routinely itemize their deductions when paying federal income taxes could see a boost on their return, Franklin accountant Max Woodbury III said.

“If you pay ahead of time, you would get, in essence, two real estate tax deductions in one year,” he said.

When the standard deduction doubles in 2018, most taxpayers will not be able to claim enough itemized deductions, which include charitable donations, home mortgage interest and property taxes, to reach an amount higher than the standard deduction, Woodbury said. That means that they will only get to receive a deduction for property taxes paid in 2017, and not ones in later years.

One major component of the overhaul to the tax system is the doubling of the standard deduction — the amount of income you get to avoid paying federal income taxes on. For 2017 taxes, which will be due in April, the standard deduction is $6,350 for one person or $12,700 for a married couple. For 2018 taxes due to be paid in 2019, which will be the first year under the new tax code, the amount of the standard deduction will nearly double to $12,000 and $24,000, respectively.

The tax overhaul also puts a new $10,000 limit on the amount of state and local taxes people can deduct from their income when calculating their federal tax liability. That new cap could translate into a tax hike of hundreds or even thousands of dollars in mostly wealthier, high-tax communities in California, Connecticut, New York and New Jersey and other states.

Woodbury said he expects that most Johnson County residents who currently go with an itemized deduction will switch to taking a standard deduction in 2018, and that there would be few circumstances where they would itemize.

“You’d have to have a mansion with a big huge mortgage on that you just bought this year or donate a considerable amount to charity,” Woodbury said.

Taxpayers deduct property taxes based on the year they paid them in, not the year they were due. This means that payments made on property taxes due on 2018 can be deducted from your 2017 federal tax bill if those property taxes are paid by the end of 2017, he said.

For Johnson County residents, that means they have until 4:30 p.m. today to either visit the Johnson County Treasurer’s Office, put a check in the mail that is postmarked on or before Dec. 29 or make a prepayment online, deputy treasurer Marsha Curry said.

Instances of residents going to the courthouse to pay their property taxes before they get a bill, and in the week between the Christmas and New Year’s holiday, are extremely rare. Curry described the amount of residents who had chosen to prepay property taxes as being highly unusual, with a steady stream of people coming throughout the day on Wednesday.

Property taxes are based off of the assessed value of a property and the tax rates levied by local governments. Taxpayers won’t receive a bill until next spring, meaning anyone prepaying has had to do so using an estimated amount, such as the property taxes they paid in 2017, Curry said. Prepaying property taxes won’t impact the ability of a property owner to contest the assessed value of their home, Curry said.

If residents make a prepayment that ends up being higher than the taxes due in 2018, they will receive a refund, Curry said.

The Associated Press contributed to this report.

How to pay

Johnson County homeowners interested in pre-paying property taxes due in 2018 have three options to do so by the end of today:

  • In person from 8 a.m. to 4:30 p.m. today at the Johnson County Treasurer’s Office, 86 W. Court St., Franklin
  • Send a check to the Johnson County Treasurer at 86 W. Court St., Franklin, IN 46131. With a note in the memo that the money is intended as a property tax pre-payment.
  • Go online to co.johnson.in.us/government/taxpropertyfinance/treasurers-office/. The payment will need to be made by 4:30 p.m. Friday.
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Jacob Tellers is a reporter at the Daily Journal. He can be reached at jtellers@dailyjournal.net or 317-736-2702.