Letter to David J. Kautter, Actin Commissioner, IRS - Long Islanders Are Now Beginning To Prepare For Filing Their Taxes & Senator Says They--And All New Yorkers--Should Be Allowed To Deduct Their 2018 Property Taxes Prepaid To State And Local Governments

Letter

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. Long Island and 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 --and tens-of-thousands of Long Islanders--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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