Some central Indiana residents are rushing to prepay their property taxes in order to take advantage of an income tax deduction that will soon change—but it's not clear the IRS will allow it.
The federal tax overhaul signed by Republican President Donald Trump last week puts a new $10,000 limit on a deduction that lets homeowners reduce their taxable income by the amount they've paid in state and local taxes. The deduction was previously unlimited. So taxpayers across the country and in Indiana are trying to get one last shot at a major deduction.
Hamilton County Chief Deputy Treasurer Kim Good said “our phones are ringing off the hook with questions” about prepaying. She said the office has been busy with people coming in to pay ahead, even though 2018 tax bills haven't been calculated.
“Most people are coming in and paying what they paid for 2017 as an advance payment for 2018,” Good said. “If there’s an underpayment, they will get billed for the remaining amount. If there’s an overpayment, they’ll get a surplus.”
A records clerk at the Marion County treasurer’s office, who would not provide her name, said the office has experienced a “drastic” increase in calls and prepayments.
But Good said she doesn’t know whether people will actually be able to claim the deduction.
“We’ve been telling them to contact their accountant or financial advisor to find out if they are able to deduct,” Good said. “We’re just here to take the payment."
The IRS said Wednesday that some homeowners who pay real estate taxes early will be able to claim the deduction—but only if the taxes were assessed, billed and paid in 2017. The IRS says people can't guess at what next year's assessment might be, pay that amount ahead of time and still get the deduction.
Good said it's unclear how the IRS guidance will apply to Hamilton County.
“We do have assessments out there on these properties,” Good said. “What we don’t have is the rates, and they usually don’t come until February. It depends on how they’re going to interpret that.”
The rush is even more noticeable in high-property tax states. That new cap could translate into a tax hike of hundreds or even thousands of dollars in mostly wealthier, high-tax communities in California, Connecticut, New York, New Jersey and other states.
In Hempstead, N.Y., town Tax Receiver Donald Clavin said "thousands" of people packed his office Tuesday trying to pay their 2018 property and school taxes a year in advance.
"This is almost chaotic," Oyster Bay Tax Receiver James Stefanich told Newsday. He said homeowners began lining up in the cold an hour before his office opened.
Many homeowners say it's worth trying to prepay because the IRS guidance isn't totally clear.
"I know later on it is going to hurt me," Scott Arbuse, of East Meadow, New York, said of the disappearing tax deduction as he waited to make a payment. "But at least I save some money now."
Across the country, Steve Sheffield made the same calculation as he went to pay his taxes in Sacramento, California.
"My accountant told me it was the thing to do," Sheffield told the Sacramento Bee . "Next year, I probably won't be able to itemize."