Tax law changes sow confusion at property tax offices
Some treasurers and financial departments in Metro Detroit are hearing from homeowners who want to prepay 2018 property taxes before the New Year to in order to maximize deductions.
U.S. taxpayers can deduct their 2018 state and local property taxes on their 2017 returns if they pay those tax bills before the end of the year – but only if the taxes were assessed before 2018, according to the Internal Revenue Service. And that’s keeping many Detroit-area municipalities from accepting those payments.
The federal authority’s guidance reflects an effort to address some of the confusion triggered by the tax overhaul signed by President Donald Trump last week and the scramble in high-tax states to avoid some of its provisions. The tax overhaul puts a new $10,000 limit on the amount of state and local taxes people can deduct from their income when calculating their federal tax liability.
Homeowners have reached out to some Detroit-area tax collection offices, hoping for one last chance to take advantage of the major tax deduction before it is wiped out in the new year.
“More than half of the people that paid their taxes on Wednesday and Thursday asked if they could prepay,” said Amy Drealan, city clerk of Pleasant Ridge. “We took in 77 payments on Wednesday and 33 payments on Thursday. I had close to 20 (total) telephone calls regarding same.”
To put that in perspective, there are only about 1,100 homeowners in all of Pleasant Ridge.
However, some municipalities like Milford Township and Grosse Pointe Woods are not allowing residents to prepay because the 2018 property assessments are not available yet.
“We’ve had a lot of phone calls regarding the limitations on what we’re going to claim in Michigan and a bunch of people coming in who want to prepay, but they can’t,” said Cynthia Dagenhardt, treasurer of Milford Township. “I don’t even have the authority to collect.
“We don’t know the property value until February when we receive the assessment, and then there’s a March board review where people appeal their values and the property taxes are not actually set until July 1.”
Grosse Pointe Woods City Treasurer-Comptroller Cathy Behrens said her offices have also received a high number of phone calls, but the city is not allowing to prepay taxes based on advice from her attorney and accountant.
“When we tell them we’re not allowing them to pay in advance, they’re not necessarily happy but do understand that it’s not something they would normally ask to do, they are doing to get the income tax credit, which I understand,” Behrens. “I’ve even printed out a bulletin posted on the IRS website, and placed it the front office for people to take with them and news articles for people to stay informed.”
Detroit Deputy CFO John Naglick said the city’s tax cycle doesn’t permit taxes to be paid in advance.
“The key is that taxes have to be assessed before year end for the payment to be deductible,” Naglick said. “Because of our assessment cycle, this is not as big a deal as it is in other jurisdictions.”
That new cap could translate into a tax hike of hundreds or even thousands of dollars in wealthier, high-tax communities, especially in California, Connecticut, New York and New Jersey.
Homeowners in states with the highest property taxes have been peppering local officials with questions about how to prepay the levies to try to take advantage of a tax break that will be limited next year. They’re being encouraged by state officials, notably in New York and New Jersey, who are trying to facilitate such prepayments.
The tax law has prompted some local governments to revise their rules in a bid to facilitate the last-minute change in federal tax strategies. The Montgomery County Council in Maryland broke its winter recess to pass a bill allowing residents to prepay 2018 taxes, the Washington Post reported. However, the county doesn’t appear to have completed its 2018 assessments – meaning its residents wouldn’t qualify under the new IRS guidance.
The scramble that has ensued over property tax prepayments reflects congressional Republicans’ rush to pass the tax-overhaul legislation and give their party and Trump a major legislative victory by the end of 2017. It took just a little over seven weeks from the introduction of the first bill in the House to the final passage of joint legislation.
Detroit News reporter Mark Hicks and Bloomberg News contributed.