The $10,000 cap on deducting state and local taxes is causing chaos.
In an attempt to beat the deduction crackdown coming in 2018, many homeowners rushed out January to prepay 2018 property tax liabilities, in the belief they could deduct them on 2017 returns, while the write-off was still unlimited.
Numerous local governments tried to be helpful by revising computer systems to accept prepayments in 2017 for the 2018-19 year.
The Service acted quickly countered to rein in prepayments of real property taxes.
Prepayments are deductible only if the property tax was assessed in 2017, according to the IRS.
For example, a county assesses 2017-18 property taxes on July 1, 2017, and bills the taxes in two installments, with the second due Jan. 31, 2018. Individuals who prepaid the second installment in 2017 can take a 2017 deduction for the amount.
But in this example people will not be able to write off 2017 prepayments of 2018-19 property taxes, that won’t be assessed until July 1, 2018, even if the county accepted the prepayments.
In Illinois since they are technically a year behind, we are paying the 2017 liability in 2018.