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IRS sets limits on prepaying property taxes, stirring confusion over GOP tax law

Residents filled out paper work and use locked drop boxes to pay their taxes at the Fairfax County Government Center Thursday in Fairfax, VA.Chip Somodevilla/Getty Images)

The Internal Revenue Service announced Wednesday that taxpayers could prepay their 2018 property taxes only if they have already received a tax assessment from their local government and they make payment by the end of the year.

The announcement clarifies who can prepay property taxes but also threatens to create confusion in state and localities across the country where taxpayers have been rushing all week to prepay property taxes after President Trump signed into law a new Republican tax bill before Christmas.

The tax legislation limits the value of the state and local tax deduction to $10,000 and bans prepayment of local and state income taxes. But it left vague whether people could prepay their property taxes.


That has set off a scramble among taxpayers to see if they could pay those taxes this year and added them as a deduction when they pay their 2017 federal taxes in April 2018.

For individuals who have received tax assessments from their municipal governments, the IRS guidance should prove comforting. But for those who have already paid estimated property taxes and did not already have an assessment for 2018 from their local officials, the decision could prove confounding.

‘‘If the property tax was assessed for this year, and payment is still not due until next year — you can still make that payment early and it will be deductible,’’ said Bradley Heim, a professor at Indiana University who worked in the Treasury Department’s Office of Tax Analysis under President George W. Bush.

States and localities will have to interpret the guidance for their residents and make clear what they will do should people need payments reversed.

Critics say that the last-minute confusion underscores the haste with which Republicans passed their tax bill, which was done in record time for such a significant piece of legislation. Other hiccups could come along in coming weeks as the IRS releases guidance on many other facets of the tax bill, the largest overhaul of federal tax law in three decades.


‘‘This is not the way to do legislation that will massively impact the entire economy. It sets off a flurry of action from people trying to save money and they act as rash as the legislators who pushed this thing through,’’ said Philip Hackney, a tax expert at Louisiana State University.