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The Hot Debate: Can You Deduct Prepaid Property Taxes?

With just two weeks to go before the April 17 deadline, prominent tax advisers still don’t agree on whether all those people who prepaid 2018 property taxes can deduct them in full.

The debate on such deductions arose after Congress passed the largest tax overhaul in three decades late last year. In a landmark change, lawmakers capped write-offs for state and local taxes at $10,000 per return for both single filers and married couples. The provision takes effect for 2018 and will lower these write-offs for millions of Americans.

The overhaul barred deductions for many prepayments of 2018 state and local income taxes, but it was silent on deductions of prepaid property taxes. After Christmas, long lines of people rushing to prepay their 2018 property taxes before year-end gathered at local government office.

Then on Dec. 27, the Internal Revenue Service warned that not all prepayments of 2018 property taxes would be deductible on 2017 returns. The agency said that to qualify for a write-off, the tax liability actually had to have been known at the time.

Right away, some tax specialists strongly agreed with the IRS but others strongly disagreed. The IRS and its supporters argued that those who prepaid all their 2018 property taxes can only deduct the portion that was known or determined at the time. In many cases, that means only for a few months of the year or not at all.

The IRS’s opponents argued for higher deductions of reasonable estimates. They based this argument on prior tax rulings and regulations that they think apply to this issue.

Now, three months later, little progress has been made.

Leading the opposition against the IRS’s position is Lawrence Axelrod, an attorney at Ivins, Phillips & Barker.

“The IRS position is misguided because it doesn’t take into account Treasury’s own regulations,” he said.

These regulations allow taxpayers to deduct amounts paid that will be due within 12 months. The IRS and its supporters disagree. They cite court decisions which say that to be deductible, taxes must have been imposed and the amount must be known.

Stephen Baxley, who heads tax planning for Bessemer Trust, a prominent multifamily office, agrees with Mr. Axelrod.

“If the amount is a reasonable estimate made in good faith, it’s deductible,” he says. The firm is responsible for preparing nearly 1,000 individual returns.

Other tax preparers agree with the IRS.

Brian Lovett, a certified public accountant with WithumSmith+Brown in New Jersey, where property taxes tend to be high, says his firm is following the IRS’s guidance: “We think the amount due must be determined for a prepayment to be deductible.”

The correct answer matters.

More than 80% of property-tax revenue is collected by local governments with a fiscal year other than Dec. 31, according to the latest data compiled by the Lincoln Institute of Land Policy. Frequently, the fiscal year ends on June 30.

As a result, total property tax bills for 2018 weren’t determined by year-end in many areas of the country. Many could reasonably be estimated, however.

For example, say John lives in a county with a fiscal year ending June 30. By the end of 2017, he knew he would owe $6,500 in property tax due by June 30, 2018. He could likely assume that his bill for the second half of 2018 would be about the same. So in late December, he prepaid $13,000 for 2018 to his county.

According to the IRS’s position, John can only deduct a prepayment of $6,500—because the amount due for the second half of the year hadn’t been set.

But if Jane lives elsewhere and knew she would actually owe $13,000 in property tax for 2018, she can deduct a prepayment of that amount on her 2017 return.

Some advisers allow both approaches. David Lifson, a CPA with Crowe Horwath who has many high-earning clients, says he recommends that clients deduct prepayments of known amounts. But he will allow a deduction of an estimate, “if I feel the client understands the risk that the IRS will disagree.”

The debate is ongoing. In March, Democrats on the Ways & Means Committee wrote acting IRS Commissioner David Kautter to protest the IRS’s interpretation of the law.

The good news for taxpayers who want to deduct prepayments of estimates is that neither Mr. Lifson nor Mr. Baxley thinks these write-offs need to be disclosed on IRS Form 8275. On it, taxpayers are supposed to disclose risky positions to avoid certain penalties. Supporters of the IRS’s position think the form should be filed, however.

Some taxpayers are also pushing preparers to take the deduction because the audit risk is low, given constraints on IRS resources.

Emily Matthews, a CPA with Edelstein & Co. in Boston, says she explains the IRS’s position to clients. But she says, “I think we’ll see a lot of people who prepaid estimated taxes opt to deduct them.”

By  | Apr 4, 2018

Posted by Sigrid Cottrell
Sigrid's Butte Blog

Here Are The 10 Best Places To See Colorado’s Stunning Fall Colors
September 27, 2015

 

In the fall, Colorado is transformed into a natural arena of shimmering colors, with the state’s signature gold Aspen trees serving as the main act. These 10 trip ideas will point you in the direction of shimmering yellows, oranges and reds this September and October.

1. Trail Ridge Road

The highest continuous paved road in North America winds through Rocky Mountain National Park from Estes Park in the east to Grand Lake in the west. With more than eight miles above 11,000 feet and a maximum elevation of 12,183 feet, Trail Ridge Road is an amazing vantage point for leaf peepers and is a favored spot for photographers. The Rocky Mountain Conservancy offers guided hikes and tours and volunteer opportunities in the park.

2. Kebler Pass

Gunnison is home to Kebler Pass, which boasts the largest aspen grove in North America and is one of renowned photographer John Fielder’s favorite places. Ohio Creek Road is a great starting point, as it passes some unique natural landscapes, including a series of ranch buildings marking the abandoned site of Castleton and the spires of “The Castles” — remnants of volcanic ash and mud that erupted from the West Elk Volcano some 30 million years ago.

3. The San Juan Skyway

San Juan Skyway, a breathtaking 236-mile loop through the San Juan Mountains of southwest Colorado, offers visitors an amazing array of fall colors and includes a 70-mile stretch known simply as the Million Dollar Highway.  The Durango & Silverton Narrow Gauge Railroad offers a special Fall Photo Train that coincides with optimal fall foliage. Another unique way to experience Colorado’s fall colors is with Soaring® Tree Top Adventures, home to 27 zip lines that pass by brilliant aspens.

4. Maroon Bells

The iconic Maroon Bells, two towering 14,000-foot mountains nestled in the Maroon Bells-Snowmass Wilderness, are the most photographed peaks in North America. Located in the 2.3-million-acre White River National Forest, the Maroon Bells tower over numerous hiking trails that offer unbeatable views of golden aspen trees. The area is accessible by car, however buses run daily mid-June through Labor Day and on weekends Labor Day through early October from the Aspen Highlands.

5. Western Slope Colors

Colorado’s Western Slope is home to the Grand Mesa, the world’s largest flat top mountain, and Colorado wine country. In addition to the reds, whites and rosés made in Grand Junction and Palisade, fall brings with it glorious colors. Powderhorn Mountain Resort’s vibrant scrub oaks contrast with golden shimmering aspens along the Grand Mesa Scenic and Historic Byway.

6. Buffalo Pass

This dirt road just west of Steamboat Springs, is lined with rows of glowing aspen groves. The pass winds eight miles up toward the Continental Divide and Summit Lake, offering stunning views of the surrounding foliage. As the fall colors become more robust, locals recommend a hike to the pristine Zirkel Wilderness Area’s Three Island Lake Trail, which takes hikers through coniferous forests and high meadows, past glacial lakes and vistas. The 6.1-mile (round trip) trail is moderate in difficulty.

7. La Veta Pass

Peaking at an altitude of more than 9,400 feet, the La Veta Pass on U.S. Route 160 in southern Colorado (west of the town of La Veta) is one of the most scenic drives in the state during the fall season. Gold aspen trees mixed with dark green pines line the pass, while the magnificent Spanish Peaks and Sangre de Cristo Mountains tower over the foliage of the San Luis Valley. The Rio Grande Scenic Railroad (May through October) passes through mountain meadows, canyons and colorful foothills otherwise inaccessible by cars.

8. Free Gondola Ride

The Telluride Free Gondola is one of the most popular ways to view Telluride’s amazing fall colors. The aerial views include the town of Telluride, its box canyon and colorful valleys lined with aspens and evergreens. For yet another way to see Telluride’s foliage, several trailheads are located right in town. Locals suggest the Jud Wiebe Trail, a three-mile loop that winds through large aspen groves and passes by Comet Falls.

9. Dallas Divide

Colorado Hwy. 62 over the Dallas Divide represents an epic fall Colorado drive. Starting near Ridgway, visitors can get an amazing view of Mount Sneffels, one of Colorado’s 58 14ers, and the expansive Sneffels Wilderness Area, which offers several hiking trails for those wishing to venture out further. The route eventually connects with Hwy. 45 and Lizard Head Pass, which offers views of Wilson Peak, the very mountain that inspired the iconic Coors logo. Read about other famous Colorado mountains.

10. Front Range Foliage

Peak to Peak Scenic and Historic Byway is Colorado’s oldest, having been established in 1918. The byway starts in Boulder and offers unmatched views of the Continental Divide and its dramatic fall colors. Though the byway is less than 60 miles in length, there are numerous stop off points along the route, including Rocky Mountain National Park, Golden Gate Canyon State Park, the Arapaho and Roosevelt National Forests, and the Indian Peaks Wilderness Area, all of which offer their own unique vantage points for leaf peepers.

 

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