Senator Bettencourt Says IRS Cancels the Run on Property Tax Prepayments for 2018 in Texas

Houston, TX – Senator Paul Bettencourt (R-Houston) reacts to IRS guidelines released yesterday (attached) that clearly indicate that Texans would not receive a deduction for prepayment of 2018 property taxes because they not been assessed and paid by 2017, per the guidelines. Due to the lateness of the federal bill passage there has been confusion related to the status of prepayments in general, and specifically whether they would quality for a tax deduction.  As the Chairman of the Senate Select Committee on Property Tax Reform, and a former Tax Assessor-Collector, Senator Bettencourt would advise the public that while several major counties in Texas are accepting these payments, they do not appear to qualify for an IRS deduction, per the attached guidelines.

“Unfortunately it looks like the IRS cancelled the run on property tax prepayments for next year in Texas,” said Senator Bettencourt.  “It is important for all taxpayers to get a copy of the attached advisory and read the statement that clearly indicates the intent of the IRS that these prepayments would not be deductible on their federal income tax returns.” 

“The IRS has received a number of questions from the tax community concerning the deductibility of prepaid real property taxes.  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 nor 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.”

The IRS guidance stated that they would only allow an additional deduction for 2018 property taxes if they were assessed and paid in 2017.  In Texas, the assessment phase is from July 25 to October 1, when actual tax bills are calculated.  This is based upon a January 1 property tax lien date (or appraised value snapshot).  This guidance seems to clearly indicate that Texans would not be able to take advantage of prepaying property taxes in advance of the tax reform changes limiting the tax deduction for state and local taxes to $10,000 per year.                         

“As always taxpayers should make this decision upon the advice of their tax accountants, but this IRS information is significant” continued Senator Bettencourt. “One thing this brought to my attention is that counties handle escrow payments differently, and I will be looking to standardize that in the future.”

A brief survey of counties indicated Tarrant County, Harris County, Fort Bend County, and Galveston County were accepting payments but counties like Montgomery County, Brazoria County, Liberty County, and Chambers County were not. Texas does not have a statewide property tax system; therefore individual counties can make these decisions one at time. While taxpayers can still make these payments the IRS guidelines clearly indicate that unless the advisory is changed, the IRS will not allow property tax deductions for these payments.

Chairman Bettencourt has already turned in a request to the Legislative Council for a bill draft standardizing the use of escrow payments by county tax offices across the State of Texas.

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