Starting in 2018, the deductibility of itemized tax deductions of state and local income taxes (SALT) and local property taxes will be limited to $10,000 for both items combined. This new limit applies for all taxpayers, whether married or single. This change has caused some taxpayers to want to prepay as much in property tax as they can in 2017.   Prepayment would only be relevant for taxpayers who itemize their deductions; whose combined SALT and property taxes exceed the $10,000 limit; and who would not be subject to the Alternative Minimum Tax (with the additional deduction).

In order to be able to prepay your taxes, your local tax department would have to accept an early payment.  In addition, on Wednesday, the IRS released an Advisory Notice regarding the ability of taxpayers to deduct prepayment of property tax. Their general guidance is that if the property taxes have been ASSESSED prior to 2018 and are paid in 2017, the payment can be counted as an itemized deduction for 2017. A prepayment of ANTICIPATED property taxes that have not been assessed prior to 2018 will not be allowed to be counted as an itemized deduction for 2017.

We recommend that anyone considering this option first consult their tax preparer.