Prepaid 2018 Property Taxes
Training for: Legal Notes
In the waning days of December 2017, town offices all across the state were deluged by taxpayers seeking to prepay their 2018 property taxes. The reason: The new federal income tax cuts limit the deduction for state and local income and property taxes to $10,000 starting in 2018. Thus, taxpayers whose combined state and local taxes normally exceed $10,000 thought that by prepaying their 2018 property taxes, they could deduct them on their 2017 federal return, before the $10,000 cap on this deduction takes effect.
Whether this is actually correct now appears doubtful. The IRS has apparently advised that 2018 property taxes are deductible for 2017 only if they were assessed as well as paid by December 31, 2017. This of course is a legal impossibility under Maine law. While Maine law does authorize prepayment of property taxes not yet assessed if the municipal legislative body (town meeting or town or city council) so votes (see 36 M.R.S.A. § 506), property taxes for any given year cannot be assessed until at least April 1 of that year, when the taxable status of all property must be determined (see 36 M.R.S.A. § 502). Hence, one of the two prerequisites for deducting 2018 property taxes in 2017 (that they were actually assessed in 2017) cannot, under Maine law, be met.
We suspect this may come as an unpleasant surprise to many taxpayers who prepaid their 2018 property taxes expecting to deduct them for 2017. We also suspect that some of them, upon learning their prepayment is not deductible, may demand a refund. But provided a municipality has authorized prepayments (see above), a taxpayer who voluntarily prepays is not entitled to a refund for any reason, nor is a tax collector authorized to give one. Prepayments are final and nonrefundable unless there is an excess over the taxes finally assessed, in which case the excess must be refunded, with interest if any was authorized. (By R.P.F.)
In the waning days of December 2017, town offices all across the state were deluged by taxpayers seeking to prepay their 2018 property taxes. The reason: The new federal income tax cuts limit the deduction for state and local income and property taxes to $10,000 starting in 2018. Thus, taxpayers whose combined state and local taxes normally exceed $10,000 thought that by prepaying their 2018 property taxes, they could deduct them on their 2017 federal return, before the $10,000 cap on this deduction takes effect.
Whether this is actually correct now appears doubtful. The IRS has apparently advised that 2018 property taxes are deductible for 2017 only if they were assessed as well as paid by December 31, 2017. This of course is a legal impossibility under Maine law. While Maine law does authorize prepayment of property taxes not yet assessed if the municipal legislative body (town meeting or town or city council) so votes (see 36 M.R.S.A. § 506), property taxes for any given year cannot be assessed until at least April 1 of that year, when the taxable status of all property must be determined (see 36 M.R.S.A. § 502). Hence, one of the two prerequisites for deducting 2018 property taxes in 2017 (that they were actually assessed in 2017) cannot, under Maine law, be met.
We suspect this may come as an unpleasant surprise to many taxpayers who prepaid their 2018 property taxes expecting to deduct them for 2017. We also suspect that some of them, upon learning their prepayment is not deductible, may demand a refund. But provided a municipality has authorized prepayments (see above), a taxpayer who voluntarily prepays is not entitled to a refund for any reason, nor is a tax collector authorized to give one. Prepayments are final and nonrefundable unless there is an excess over the taxes finally assessed, in which case the excess must be refunded, with interest if any was authorized. (By R.P.F.)
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