by Brandon Todd
I hope you are enjoying the holiday season. I am reaching out as a reminder that the deadline to prepay your real property taxes and claim a deduction on your 2017 return is coming up quickly -- you have until midnight on December 31, 2017.
I'm sharing a letter from Jeffrey DeWitt, the District's Chief Financial Officer, with the latest information regarding prepayment of real property taxes in light of the Internal Revenue Service's recent Advisory. You can find the letter below.
To prepay District real property taxes, please visit the Office of Tax and Revenue's web-based property tax bill payment form. You can also visit any branch of Wells Fargo in the District to prepay real property taxes. Please consult a tax adviser or financial planner before making any prepayments.
Have a happy and safe new year!
[Editor's Note: While DC residents seem to be in a position to prepay their property taxes (because our property taxes are assessed in 2017), you should definitely talk to a tax professional to know what is best for you. If your bank pays your property taxes via a home mortgage escrow account, according to an article in the Washington Post, you should talk with your bank to ensure you don't end up double-paying your taxes, and that the bank can update the record of payment. If the payment amounts from the bank and from your tax return don't match when you file your taxes, you could be at risk for an audit by the IRS, according to an article in the New York Times. So dot your T's and cross your eyes. Thanks for the confusion, Republicans!]
Letter from Jeffrey DeWitt, DC CFO:
As you may be aware, late on December 27, 2017, the IRS issued a news release in the form of an IRS Advisory, “Prepaid Property Taxes May be Deductible in 2017 If Assessed and Paid in 2017.” In short, the IRS Advisory states, “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.”
For the District of Columbia, real property taxes for Fiscal Year 2018 (October 1, 2017 through September 30, 2018) are assessed, by law, as part of the approved budget approval process for the new fiscal year which begins October 1. At that time, the tax rate is set and the liability is established for all properties for the fiscal year.
Taxpayers also received Notice of Proposed Assessments for Fiscal Year 2018 as of March 1, 2017. Taxpayers must make payments on or before March 31, 2018 and on or before September 15, 2018. The billings for the first half of the fiscal year will be sent no later than February 28, 2018 and for the second half of the fiscal year on or before August 15, 2018.
The IRS Advisory provides two examples for when a taxpayer can and cannot deduct prepayment of these taxes in 2017. Based on a legal review by the Office of Tax and Revenue, the District falls under Example 1, which indicates taxpayers prepaying their 2018 tax bills in 2017 can deduct the tax payments on their 2017 tax return. 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.
The Office of Tax and Revenue continues to recommend that taxpayers consult with their own tax advisors before making any prepayments. They may also need to coordinate payments with their mortgage company.
HOW TO PREPAY REAL PROPERTY TAXES
If a taxpayer chooses to prepay property taxes given their federal tax situation, they may choose to base their property tax prepayment on the amount paid in the previous half-year. The prepayment can be for the entire fiscal year (October 1, 2017 - September 30, 2018). Once the prepayment for 2018 is made in 2017, adjustments based on the corrected amount will be included in subsequent billings. These adjustments may be due to factors such as the homestead deduction, senior deduction, or other changes that impact billings.
Taxpayers can prepay online by going to [the OTR website online bill payment form]. They can then put in their property information and, after it is selected, click the “Pay Here” button at the bottom of the page and then pay by e-check. They will need their checking or savings account number and routing number. This option is available until midnight on December 31.
The other option is to go to any DC-based Wells Fargo branch where you can pay via check or credit card. You will need to bring your latest property tax bill so your account is credited appropriately. This option is available until close of business for the particular branch on Saturday, December 30th.
Jeffrey S. DeWitt
Chief Financial Officer
District of Columbia Government
Office of the Chief Financial Officer