WASHINGTON — The flurry of activity by homeowners in the D.C. area and local jurisdictions to facilitate prepayment of 2018 property taxes ahead of a new tax code that goes into effect Jan. 1 will, in most cases, be for naught.
D.C. residents luck out, according to city officials.
The new federal law will cap deductions at $10,000 for all combined state and local taxes, including both income and property taxes.
On Wednesday, the Internal Revenue Service announced that prepayments could only be deducted under a few scenarios.
Residents of the District of Columbia who prepay should be able to deduct their taxes in 2017, because of specifics in D.C. law, according to a Thursday statement from Chief Financial Officer Jeffrey DeWitt.
The IRS statement said “whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.”
The IRS guidance on how taxpayers will be affected by the tax overhaul leaves local governments contemplating how they will handle the millions of dollars sent by taxpayers who were anxious to prepay future property taxes before the limitations of the new law take effect.
Most local jurisdictions have not completed assessments for future years.
However, in the District, real property taxes for fiscal year 2018 — which runs Oct. 1, 2017 through Sept. 30, 2018 — are assessed as part of the city’s annual budget process which was finalized in October, the CFO said. In addition, taxpayers in March received notices of proposed assessments for fiscal year 2018.
“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.”
In Virginia, local tax authorities assess real property as of Jan. 1 of each year. Tax assessments in Virginia are mailed in February.
The day after the IRS announcement, local governments are considering next steps.
More than 650 Alexandria taxpayers prepaid more than $6 million this month, according to a statement from the city.
Customers may request refunds by emailing the city’s Treasury Division, at payments@alexandria.gov. The email should include the taxpayer’s name, address of the applicable property, the type of tax prepaid (real estate or personal property), the date of the prepayment, and how it was made.
“Given the unprecedented potential for refund requests, refunds may take up to six weeks to process,” according to the statement.
The Arlington County Treasurer’s office says it is not giving advice, but suggesting taxpayers speak with tax professionals. Requests for refunds of prepayments already made should be made in writing, and will take between four to six weeks.
Thursday morning, Fairfax County spokesman Jeremy Lasich said the county is in the process of finalizing its reimbursement policy.
An employee in the Loudoun County Treasurer’s office said reimbursement specifics are still being worked on. On Facebook, Treasurer Roger Zurn said refunds may take a few weeks. Emailed requests for refunds can be sent to taxes@loudoun.gov.
Prince William County spokesman Jason Grant said prepayments will be reimbursed. Immediately, the money will be credited in the county’s online system, and be applied to pay 2016 taxes, with the remainder refunded.
In Maryland, the Montgomery County Council approved a bill earlier this week allowing residents to prepay their 2018 property taxes before the end of the year. That bill predated the IRS announcement.
In updated guidance posted Thursday, Montgomery County officials said: “There can be no refunds until there is a 2018 tax bill for your account, the prepayment of 2018 tax is posted to your 2018 tax bill, and the prepayment exceeds the amount due on the 2018 Real Property Consolidated Tax bill.”
Montgomery County officials said they encourage taxpayers to consult their own tax advisers about making prepayments on property taxes.
Prince George’s County Council had planned an emergency session to consider allowing prepaid taxes, but following the IRS announcement, the meeting was canceled. In a statement, the council said it would not move forward with any legislation, so as not to “add any more confusion” to the tax plan.
