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Home Government Rye & The Tax Prepay: A Summary

Rye & The Tax Prepay: A Summary

For those of you frantically trying to track down your accountants and financial advisors on their holiday vacations, here is a summary of Rye residents' ability to prepay 2018 taxes to avoid the negative impacts of the new Trump tax plan.

IRS logo

Specifically, the Trump plan limits the deductibility of state and local taxes to $10,000 starting in 2018. That barely gets you started around here between city tax, school tax, county tax and state tax. 

The new tax law does not allow prepayment of 2018 income tax, but does allow prepayment of property tax as long as the tax has been assessed (see this NY Times piece). What does that it mean that a tax has been assessed? There has been a proposed and accepted budget and a tax warrant has to have been issued. None of these things are easy or speedy to complete… Also, the IRS issued an advisory just yesterday on this swirling issue of prepayment.

Here is what we know.

As always, consult your advisors. If you have any additional insights, please add these as a comment to share with other MyRye.com readers.

OK, let's break it down:

The good news:

  • The City of Rye is accepting prepayment of 2018 taxes. See our earlier story, and get yourself over to the city web site (you can pay via credit card or ACH) or city hall ASAP, and you need to make payment by Friday, December 29th before the weekend starts to make things difficult or impossible.

The bad news:

  • Westchester County is not accepting prepayment. From LoHud.com: "Westchester County Executive Rob Astorino announced late Tuesday afternoon that his outgoing administration would not deliver a tax warrant to the Board of Legislators this week. Astorino spokesman Ned McCormack said Westchester ran out of time. The warrant, which divvies up the tax levy among the county's 25 cities and towns, is typically issued in March. “It is just not possible for the county to issue its 2018 tax warrants to localities within the next four days for a whole host of legal, operational and practical reasons,” McCormack wrote. “There is no way to do this responsibly by the end of the year, given all the laws that the county must follow under Westchester’s charter and the U.S. tax code, as well as a host of other variables and unknowns.” See the story.

At the State level, you cannot prepay 2018 State income taxes. If for some reason, you think you will owe New York State additional 2017 income taxes (over and above any existing withholdings and payments), you should look at paying these amounts before the end of the year.

Know something we don't? Has your accountant or financial advisor given you sage advice?

Share this in a comment below.

3 COMMENTS

  1. I think you’ve raised a very good 11th hour point, Jay.

    IRS insists that the property taxes you intend to prepay be actually legally “assessed.” Here is the IRS wording:

    “In general, 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. State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.”

    Rye City Manager Serrano makes no such claim as to the 2018 Rye City Taxes actually being currently legally assessed. Here is Mr. Serrano’s wording:

    “Marcus Serrano, City Manager of the City of Rye announced today that the City has been receiving a number of requests for prepayment of City taxes. Mr. Serrano stated even though the City is not obligated to collect the prepayment of City taxes, the City is always trying to serve its taxpayers and he is pleased to be able to accommodate these requests from the residents. Mr. Serrano has been working with the Finance Department, IT Department and the software vendors to implement the necessary changes to allow for the prepayment of taxes. Mr. Serrano stated that the requests are based on the proposed tax law changes. Mr. Serrano wanted to make it very clear that even though the City taxes may be prepaid, the question of deductibility is a question that must be answered by a tax preparer. Therefore Mr. Serrano stated that “the City of Rye makes no claim, nor bears any responsibility for the deductibility of the pre-payment of property taxes. You should consult your tax professional for further information”.”

    Note Mr. Serrano’s gigantic omissions – he makes zero claims that the taxes that you can prepay Rye City are already legally assessed – city tax bills are typically issued on February 1st and legally due by March 1st (unless you’re a powerful local elected official with a 5-year long unsupportable underpayment excuse, but lets leave that to one side for now).

    So what is the city representing about these prepayments? Actually nothing – except they will take your money – thus Mr. Serrano’s many caveats in his statements above.

    I think now that IRS has issued direct guidance on property tax prepayments that Mr. Serrano should address it immediately. Or face the backlash of residents who act in good faith to front the city money they believe has a chance of being legally deductible.

    And, as always, consult your own tax professional before forking over the dough, or rest in peace.

  2. It is 10AM on December 29, 2017 – and still no word from City Manager Serrano as to whether the 2018 Rye City property taxes in question here have already been LEGALLY ASSESSED. What a cluster____.
    Here is new info from today’s Wall Street Journal:
    “The Internal Revenue Service’s Wednesday guidance upended many taxpayers’ plans of paying their 2018 property taxes early to claim a federal deduction before the new tax law takes effect in January.
    If you’re thinking of prepaying—or if you have already prepaid—here are a few things to keep in mind:
    1. Check Your Tax-Assessment Dates
    Make sure your local tax office has assessed your property for 2018.
    Many jurisdictions will bill taxpayers several times throughout the year. If you have received a bill due in 2018, it might make sense to pay it now if you want to claim a federal deduction. For instance, Iowa property taxes are paid semiannually and residents have received a bill due in early 2018, said Nicole Kaeding, an economist at the Tax Foundation. “Those individuals could go ahead and pay by the end of the year and it would be safe to deduct,” she said. In jurisdictions that have assessed properties but not yet sent bills, there may be a gray area. The District of Columbia, which has assessed but not yet billed taxpayers, says they may qualify for the deduction by paying before the end of this year. But it is not yet clear the IRS will agree.
    2. Beware the AMT
    Make sure that by prepaying your property taxes you wouldn’t become eligible to pay the alternative minimum tax. The AMT is a separate tax system originally designed to prevent people from using legal tax breaks to avoid paying all taxes that largely applies to higher-income households. If prepaying your 2018 property taxes sends your federal tax deductions soaring, you may hit the threshold that would require you to pay the AMT. Similarly, if you will already be paying the AMT, prepaying property taxes may provide little or no benefit.
    3. Make Sure Your State and Local Tax Bill Is High Enough
    Try to determine whether your total state and local tax bill next year will exceed the $10,000 cap that was added to the law. If you have consistently paid less than $10,000 in state and local taxes, you will likely still be able to deduct the full amount you pay in to your state and local governments. Also note that depending on your individual tax situation, you may prefer for 2018 to take the standard deduction, which the law raised to $12,000 for individuals, $18,000 for heads of household and $24,000 for married couples filing jointly.
    4. Speak With Your Mortgage Provider
    Many homeowners pay their property taxes through an escrow account set up by the mortgage provider. That way they send one monthly payment to the mortgage company, which then takes care of paying the necessary taxes. If that is your situation and you’d like to prepay your property taxes, make sure you speak with your mortgage company first so you don’t end up paying your taxes twice.
    5. Talk to a Professional
    Finally, and most important, talk to your tax adviser. Circumstances vary by household and somebody well acquainted with your situation is probably in the best position to give you relevant advice.”

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