If you own or manage commercial real estate, you know there is always some tiny detail of property management that can easily get overlooked. The question is, will it get overlooked? With 2017 officially at a close and 2018 underway, it has brought lots of questions about the change in tax laws. While changes to the tax code were just revealed by President Trump, people are still unsure of how that will apply to commercial real estate owners and those who are thinking of negotiating a contract for the purchase or sale of a commercial property in 2018.
This led to a flood of people in high tax states, like Massachusetts, to prepay their property taxes prior to the turn of the year to avoid financial difficulties. Why would so many people rush to pay early? It's because the IRS said that taxpayers can deduct prepaid state and local property taxes for 2018 on 2017 returns only if the taxes were assessed before 2018. The problem is that the briefing, which doesn't define the term "assessed", has local tax officials scratching their heads.
Therefore, people were looking to save a few (or many) bucks by getting their property taxes paid prior to any increase in costs associated with property taxes. A deduction is a savings and if last year's property taxes can be reduced, that means they can bring down the total value of taxes assessed for a property owner. However, there is no guarantee that early prepayment will save everyone money. The state is looking to the federal government for guidance, while the federal government claims that this issue is left to the states to decide. If in the middle of buying or selling a commercial property, this is something to consider if it is a property with high-tax obligations.
While there hasn't been any clarity on the issue yet, many who prepaid property taxes are hoping that it wasn't in vain. A new law that caps property tax deductions drove the herd of property owners to prepay before 2018. However, it appears each person's situation will be different as this year's taxes will depend on where you live and whether you pay the alternative minimum tax. New tax legislation may lead to some confusion and property owners should be cautious in order to avoid paying extra on taxes or tax-related fees.
Source: patriotledger.com, "Under new law, when should you pay property taxes?," Eric Wasson and Lynnley Browning, Dec 29, 2018