01.16.18

SCHUMER CALLS ON IRS TO IMMEDIATELY GRANT NEW YORK TAXPAYERS THE ABILITY TO DEDUCT PREPAID 2018 PROPERTY TAXES FROM THEIR 2017 FEDERAL TAXES

Senator Says All New Yorkers Should Be Allowed To Deduct Their 2018 Property Taxes Prepaid To State And Local Governments

Schumer To IRS: Give Middle-Class New Yorkers The Tax Savings They Need & Deserve

U.S. Senator Charles E. Schumer today called on the Internal Revenue Service (IRS) to immediately grant New York residents, who paid their 2018 property taxes early, the ability to apply those taxes to their 2017 state and local tax deductions, even if their property taxes were not assessed.  Schumer, the Senate Minority Leader said, this would allow these taxpayers to take a larger state and local deduction in 2017, before the harmful, new state and local tax deduction (SALT) cap takes effect.

“The just-passed tax bill hammers middle-class New Yorkers and any relief that can be provided – by the IRS or any other entity – must be provided,” said Senator Schumer.  “That is why I am calling on the IRS to let New Yorkers who prepaid prior to January 1, 2018 to deduct their property taxes in tax year 2017. The IRS should follow the letter of the law and allow these prepayments to be counted in tax year 2017.”

Schumer continued: “It is not unusual for there to be long lines in malls and department stores right before Christmas. But, what is unusual are long lines at community town halls around New York State to prepay property taxes. In fact, it’s unprecedented. Instead of preparing for the holidays, New Yorkers were scrambling to write checks before a midnight deadline, when thousands and thousands of New Yorkers would no longer be able to deduct their property taxes in the federal taxes without facing the new cap. 

Schumer is specifically calling on the IRS to follow the letter of the law, which was written without mention of deducting prepaid property taxes.  

“Allowing the prepayment of property taxes would lessen the damage of the new cap on state and local tax deductions,” said Schumer.  “The IRS ought to do the right thing here; it is common sense and fair – especially given how this bill unfairly targets states like New York and hard-working middle-class taxpayers.”

Schumer said thousands of New Yorkers prepaid their property taxes for 2018 in the nine days after the tax bill was enacted and before the effective date of the state and local tax cap on January 1, 2018.  Many New Yorkers prepaid their 2018 state and local property taxes with the belief that they could retain the ability to deduct these property taxes from their federal taxes before the new cap imposed on state and local tax deductions.

During the three week period as Republicans rushed through a partisan anti-middle class and anti-New York tax bill, Schumer loudly and staunchly opposed the first proposed elimination, and then cap, of the state and local tax deductions, also known as SALT. While the state and local deduction cap, Section 11042 of the legislation, explicitly prohibits 2018 state and local income taxes from being prepaid and deducted from federal income taxes in 2017, it does not include language on the prepayment and deduction of property taxes. This may be because this section of the partisan legislation was a last minute addition – hastily written behind closed doors.  

Schumer warned that thousands of New Yorkers could face a tax hike from the cap on state and local deductions and pointed out the review of experts at firms like Price Waterhouse Cooper who say eliminating or reducing the state and local tax deduction would decrease home values in each of New York’s congressional districts, placing pressure on state and local governments to deliver cuts to education or their local fire and police departments.

Schumer’s letter to IRS Acting Commissioner David J. Kautter appears below:

The Honorable David J. Kautter

Acting Commissioner

Internal Revenue Service

1111 Constitution Avenue NW

Washington, D.C. 20224

Dear Acting Commissioner Kautter:

I write to urge the Internal Revenue Service’s (IRS) to revise its recent guidance [IR-2017-210] on December 27 suggesting that property taxes paid in the calendar year 2017 would not be deductible against federal income taxes in the year they were paid.  New York taxpayers are confused about this hastily written tax law and need clarity, consistent with the law, on provisions that may cause them to see a tax hike.  The IRS should rescind their recent guidance, which is not supported by the law, and clarify that taxpayers are allowed to deduct their prepaid 2018 property taxes to state and local governments for tax year 2017.

As you know, Section 11042 of P.L. 115-97 imposed a cap on the deduction of state and local taxes for the first time in the history of our country.  This provision was agreed to last minute in a secretive partisan conference agreement. It will cause many New Yorkers and taxpayers across the country to see a tax hike. In order to lessen the damage of this provision, thousands of New Yorkers prepaid their property taxes for 2018 in the nine days after the tax bill was enacted and before the effective date of the state and local tax cap on January 1, 2018.  These New Yorkers prepaid their 2018 state and local property taxes with the understanding that they could deduct these property taxes from their federal taxes in 2017, before the new cap was imposed on state and local tax deductions.

Many state and local government did not have time in these nine days, which fell in the middle of a holiday break for many, to react to this new law and accept prepaid property taxes. However, certain states governor’s, including New York’s, moved with haste to issue executive orders authorizing local governments to accept prepayments. These efforts were made with a fair interpretation of the new law which has been challenged by the IRS’s recent guidance.

The legislative text does not support the IRS’s December 27 guidance suggesting that property taxes paid in the calendar year 2017 would not be deductible against federal income taxes in the year they were paid.  While Section 11042 explicitly prohibits 2018 state and local income taxes from being prepaid and deducted from federal income taxes in 2017, it does not include language on the prepayment and deduction of property taxes.  26 U.S.C. 164(a) outlines that state and local personal property taxes that were “paid or accrued” shall be allowed as a deduction for the taxable year. The new tax law does not change this. The exclusion of property taxes may or may not have been intentional given the secretive and rushed process that this legislation underwent to become law. Nevertheless, the legislative text does not prohibit the deduction of prepaid 2018 state and local property taxes accrued in 2017.

Again, I urge IRS to rescind their recent guidance, which is not supported by the law, and clarify that taxpayers are allowed to deduct their prepaid 2018 property taxes to state and local governments in 2017, independent of whether they were assessed in 2017.

Sincerely, 

Charles E. Schumer

United States Senator

 

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