Should MA Residents Prepay Their 2018 Property Taxes?

BOSTON, MA — Massachusetts property owners were left wondering whether or not they should prepay taxes after the IRS issued ambiguous guidance on Wednesday. And that decision took on an even bigger sense of urgency Thursday, when Secretary of State William Galvin said tax prepayments had to be submitted in person by the close of business on Friday -- seemingly contradicting what some localities had told residents.

The guidance from the state and IRS confused some Massachusetts localities. Tewksbury, for example, posted a notice on its Website Friday afternoon saying residents could prepay 2018 property taxes online through December 31. And Brookline had already told residents that they could prepay taxes by mail as long as their payments were postmarked by December 30, according to Brookline Town Meeting Member John Vanscoyoc.

The rush -- and the ensuing confusion -- comes with the new Trump administration tax package, which will cap the amount of state and local taxes people can deduct on their federal returns at $10,000. The rationale is that if you pay your 2018 property taxes in 2017, you won't get hit with the cap provision until the second year under the Trump tax bill. In Massachusetts, where property values are soaring, property taxes are by far where taxpayers take the biggest hit on the local level.

The problem for Massachusetts residents is that many communities operate on a fiscal year that starts July 1, meaning they have yet to set their 2018 tax rates and assessments. And Galvin's guidance said people could only prepay taxes that were assessed this year, meaning if your town hasn't assessed yet, you won't benefit from prepaying. But Tewksbury was still advising residents to pre-pay their property taxes. "The February and May bills are not available online," the town's notice said. "Please overpay your last bill from November 1, 2017 and the credit will get transferred to the correct bills once they are available online."

Galvin's comments essentially echoed the IRS directive: "In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017."

In other words, if your town hasn't assessed property taxes for 2018 yet, you're going to have to live with the cap when you file your federal return.

And, oh yeah, businesses close for the year on Friday (with lots of towns having early closures ahead of the holiday weekend to make things even more hectic), which means you're running out of time to figure out what to do. Galvin's advisory also said payments need to be made in person.

What should you do?

Step one is to figure out whether or not your town has set assessments by calling your town clerk or visiting the town Website. If they haven't -- and chances are they won't before Friday -- keep the money in the bank and collect the interest until the actual due date. Financial advisers generally view prepayment of any tax as a bad idea, because you lose the chance to earn the interest on that money by allowing the government to hold onto it.

The exception to this is if you live in a town like Tewksbury or Brookline, which have already said they will allow you to make payments by mail or online through the end of the year. You can repay, but you are taking a chance the IRS will overrule the town's directives and you'll have prepaid for nothing.

If your town has assessed already, there's a good chance they haven't assessed for the full year, so you may only be able to prepay a portion of the year. And the tax package -- as well as its interpretation -- isn't set in stone. So prepayment may not deliver the big tax savings you're hoping for. As Rep. Richard Neal (D-MA) wrote in letter to the IRS asking for further clarification, there is still a ""tremendous amount of uncertainty and misinformation" about how the law applies to pre-payments.

If you already pre-paid, well, good for you: that's one less bill you have to worry about later on and there's a chance you'll see the savings people around the country were hoping for when they started scrambling to local tax offices this week.

Patch file photo.

Dave Copeland can be reached at dave.copeland@patch.com or by calling 617-433-7851. Follow him on Twitter (@CopeWrites) and Facebook (/copewrites).