New Jersey U.S. Reps. Leonard Lance, a Republican, and Democrat Josh Gottheimer teamed up on Jan. 18 to introduce a bipartisan measure that would let American taxpayers deduct all 2018 property tax prepayments from their 2017 income taxes, as many believed they could do.
The SALT [State and Local Tax] Prepayment Deductibility Act, H.R. 4803, would stipulate that the real property tax amounts paid in calendar year 2017 for the 2018 assessed property taxes “must be treated as paid or accrued within 2017” for the purpose of the federal tax deduction and certain state and local taxes, according to a summary of the bill.
The Tax Cuts and Jobs Act enacted on Dec. 22, 2017 says that taxpayers cannot deduct state and local income tax prepayments, but it doesn’t specify whether property tax prepayments are deductible, according to Rep. Lance’s office. Accordingly, many taxpayers thought they could, and so did prepay their entire 2018 property tax liability before the end of 2017, according to the congressman’s office.
In fact, then-governor Chris Christie (R-NJ) on Dec. 27 issued an executive order instructing all Garden State municipalities to accept prepayments for full 2018 property tax liability, according to Lance’s office, with many more of the state’s taxpayers prepaying than would typically do so.
However, late on Dec. 27 — after many American taxpayers had made prepayments — the Internal Revenue Service (IRS) released an advisory limiting such deductibility based on the property tax assessment date, meaning 2018 property tax liability would be fully deductible only if assessed in 2017.
In addition to introducing H.R. 4803 to address the problem, Rep. Lance in a recent letter asked Acting IRS Commissioner David J. Kautter to reconsider the IRS guidance and suggested expanding the deduction to all 2018 property taxes without consideration of the assessment date.
As Lance pointed out, “It took the IRS five days after the bill passed and four days before the end of 2017 to issue guidance that would limit the deductibility based on the date of the property tax assessment.”
On that point, Rep. Gottheimer said the IRS “rushed a baseless decision to limit taxpayers’ ability to deduct these payments on their 2017 returns.” If enacted, H.R. 4803 “would reflect the will of Congress that these prepayments are and should remain fully deductible,” he added.
Rep. Lance called the IRS ruling unfair and said H.R. 4803 would instruct the IRS “to allow full deductibility to protect New Jersey taxpayers.”
He added, “The IRS and state governments should work in comity on these matters.”
U.S. Reps. Dan Donovan (R-NY) and Rodney Frelinghuysen (R-NJ) signed on as original cosponsors of H.R. 4803, which awaits consideration by the House Ways and Means Committee.