Virginia Real Property Tax Prepayment Limitation Under the New Federal Income Tax Law

by Williams Mullen
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Williams Mullen

Many individual taxpayers are rushing to prepay their real property taxes in anticipation of the new lower cap of $10,000.00.  Not everyone will be able to take advantage of the tax planning idea.  The IRS has issued new guidance as of December 27, 2017 that may restrict the effect of the prepayment. [see Advisory below].

The key is the date of the actual assessment.  Per the IRS, the actual assessment must be done in calendar year 2017 to take advantage of the prepayment.

Virginia has two options for the assessment date. 

Option One – Some counties, cities, and towns in Virginia have adopted a fiscal tax year with assessments effective July 1 of the current year.  This means that the assessment date for these localities’ 2017-18 tax year was July 1, 2017.  Taxpayers with real estate in localities that have this assessment date can prepay the remaining unpaid amount of their July 1, 2017, assessment prior to December 31, 2017.

Option Two – Most counties, cities, and towns in Virginia use a calendar tax year with assessments effective January 1 of the current year.  This means the assessment date for these localities’ 2017 tax year was January 1, 2017.  Taxpayers with real estate in these localities should have already paid their entire assessment for 2017.  The assessments that these localities will make on January 1, 2018, will be due and owning in 2018.  Under the IRS Advisory, no prepayment of these 2018 assessments can be deducted in 2017.

Virginia taxpayers must confirm their local assessment date to determine if they can take advantage.  The chart below lists the counties, cities, and towns that we understand have adopted a fiscal tax year with assessments effective July 1.  The chart indicates the tax installment due dates for these localities, as well as the installments that will not be due before December 31, 2017 – and which taxpayers should be able to prepay by December 31, 2017, in order to take advantage of any prepayment benefit.

Other states have similar restrictions.  Those states need to be reviewed at the local level for the assessment dates.

If you have any questions call Shane Smith at 757.629.0706 or Stephanie Lipinski Galland at 891.652.1620.

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Locality

Tax Due Dates

Taxpayers should be able to prepay:

Cities:

   

Bedford

9/30; 12/31; 3/31; 6/5

Mar and June installments

Buena Vista

12/5; 6/5

June installment

Chesapeake†

9/30; 12/31; 3/31; 6/5

Mar and June installments

Covington

12/5; 6/5

June installment

Danville

12/5; 6/5

June installment

Franklin

12/5; 6/5

June installment

Fredericksburg

11/15; 5/15

May installment

Harrisonburg†

12/5; 6/5

June installment

Lexington

12/5; 6/5

June installment

Lynchburg

11/15; 1/15; 3/15; 5/15

Jan, Mar, and May installments

Manassas

12/5; 6/5

June installment

Manassas Park

12/5; 6/5

June installment

Martinsville†

12/5; 6/5

June installment

Newport News

12/5; 6/5

June installment

Norfolk

9/30; 12/5; 3/31; 6/5

Mar and June installments

Petersburg

9/1; 12/1; 3/1; 6/1

Mar and June installments

Poquoson

12/5; 6/5

June installment

Portsmouth

9/30; 12/31; 3/31; 6/30

Mar and June installments

Suffolk†

12/5; 6/5

June installment

Virginia Beach

12/5; 6/5

June installment

Williamsburg

12/1; 6/1

June installment

Counties:

   

Bath

12/5; 6/5

June installment

Charlotte

12/5; 6/5

June installment

Isle of Wight

12/5; 6/5

June installment

James City†

12/5; 6/5

June installment

Mecklenburg

12/5; 6/5

June installment

Middlesex

12/5; 5/5

May installment

Towns:

   

Appalachia

12/5

none

Boyce

12/5

none

Boydton

1/1

Jan installment

Chase City

1/31

Jan installment

Clarksville

2/1

Feb installment

Clifton Forge

12/5; 6/5

June installment

Colonial Beach

12/5; 6/5

June installment

Drakes Branch

2/15

Feb installment

Gate City

12/21

none

Halifax

12/5

none

Haysi

12/5; 6/5

June installment

Hurt

12/5

none

Independence

12/5

none

La Crosse

12/31

none

Madison

6/1

June installment

Narrows

12/5

none

Round Hill

12/5

none

South Hill

1/5

Jan installment

Stephens City

3/15

Mar installment

Victoria

12/5

none

Woodstock

12/5; 6/5

June installment

     

† Assesses as of Jan 1 but does not place values on its tax roll until fiscal year beginning
Jul 1

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IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017

Dec. 27, 2017

WASHINGTON — The Internal Revenue Service advised tax professionals and taxpayers today that pre-paying 2018 state and local real property taxes in 2017 may be tax deductible under certain circumstances.

The IRS has received a number of questions from the tax community concerning the deductibility of prepaid real property taxes. 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. State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.

The following examples illustrate these points.

Example 1: Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018. On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018. Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.

Example 2: County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 — June 30, 2018. County B intends to make the usual assessment in July 2018 for the period July 1, 2018 — June 30, 2019. However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year. Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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