Paying next year’s property tax early? Don’t count on it lowering your federal taxes

Durham and Orange County taxpayers rushing to prepay their 2018 property taxes before Jan. 1 aren’t likely to get a deduction on their 2017 federal tax bill, local officials said.

The change in federal tax law is causing long lines at tax offices around the country. Orange County’s tax office had so many taxpayers show up early Thursday that it had to add more lines and bring in the fire marshal to make sure the office didn’t violate the fire code, tax administrator Dwane Brinson said.

Concerns and questions about the change also prompted the Internal Revenue Service to offer new guidance about the Republican tax overhaul that President Donald Trump signed into law last week.

The IRS update specifies that only local property taxes levied in 2017 and paid by Dec. 31 can be deducted from upcoming federal returns. The law also caps the amount of state and local taxes that can be deducted at $10,000, beginning in 2018.

Durham tax administrator Kimberly Simpson said her office thinks that rules out most North Carolina taxpayers.

That’s because although property taxes are assessed by Jan. 1 each year, the final bill is not mailed out until July 1, after local government bodies set their budgets and tax rates for the next year. Payments are due Sept. 1, but not considered late until Jan. 5.

However, Brinson and Simpson urged taxpayers who want to err on the side of caution to contact their accountant or tax preparer.

“We’ve been telling them they need to seek their tax adviser’s advice or contact the IRS,” Brinson said. “We can’t express our interpretation of any law. Ultimately, it’s the IRS’s call whether it will allow the deduction or not.”

Chris McLaughlin, an associate professor of public law and government at UNC’s School of Government, also addressed the issue in a blog post Thursday.

The IRS will decide whether tax payments count for the purposes of federal income tax deductions, he said, noting that if the IRS decides to use Jan. 1, 2018, as the tax asessment date, prepayments would not qualify for a deduction on 2017 tax returns.

“But we are all just guessing at this point,” he added. “We really don’t know how the IRS will resolve this issue until it starts processing 2017 tax returns.”

News that the tax deduction might not help is getting around, Simpson said. Her office already has seen a number of taxpayers return to ask for a refund of their prepaid taxes or put a stop on their check, she said. However, state law only allows refunds when there’s been a clerical error, illegal taxes were levied, or taxes were levied for an illegal purpose.

Tax payments made early will be placed in a special fund to ensure that they are not used until the 2018-19 fiscal year as noted by state law, Durham County officials said. Taxpayers who still want to prepay their 2018 taxes before Jan. 1 have until 5 p.m. Friday, Dec. 29.

Taxpayers can make payments at the Orange County Tax Office, located in the Gateway Center, 228 S. Churton St., Suite 200 in Hillsborough, and at the Durham County Tax Office, 200 E Main St. in Durham.

This story was originally published December 28, 2017 at 1:38 PM with the headline "Paying next year’s property tax early? Don’t count on it lowering your federal taxes."