Hundreds of taxpayers across the Triangle have rushed to prepay their 2018 property taxes, hoping to claim a deduction before new federal tax policies take effect and cap the amount taxpayers can write off in state and local taxes.
In Wake County, 560 taxpayers have prepaid about $2.3 million in 2018 property taxes, according to Marcus Kinrade, the county’s director of revenue. Orange County has gotten hundreds of requests to prepay, and the majority of people in line Wednesday in Durham County were there to prepay, according to officials there.
But according to guidelines released by the IRS on Wednesday, North Carolinians may be out of luck. Property taxes in North Carolina are not assessed until July after counties set rates. Payments are due Sept. 1, but not considered late until Jan. 5.
That makes North Carolina counties like the hypothetical county in what the IRS guidelines call Example 2. In that example, taxpayers who prepay their 2018 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.”
“I don’t believe we fall into the category of the ability to use this as a deduction because our taxes are not imposed until after the rate is set,” said Kimberly Simpson, tax administrator for Durham County.
Said Kinrade: “The second scenario basically mimics the way property taxes work in North Carolina.”
Republicans’ tax bill, passed quickly by the House and Senate this month and signed by President Donald Trump before Christmas, caps the amount taxpayers can deduct for state and local taxes at $10,000 — a move that could have huge impacts on states like New York, California, Illinois and parts of Virginia.
But taxpayers with large property tax bills and large state tax bills would be affected no matter what state they live in. In Wake County, for example, a married couple filing jointly with a $500,000 home and $100,000 in household income would owe just over the $10,000 cap in property and state taxes.
North Carolina counties are not obligated to accept prepayments, but Wake, Durham and Orange are accepting them, using estimates from 2017 taxes to provide a baseline for the payments.
“The people that are requesting it are quoting the law change as the impetus behind their desire to prepay,” said Dwane Brinson, Orange County’s tax assessor.
Counties, likewise, are not obligated to return prepayments.
Simpson said Durham County doesn’t plan to refund the payments if taxpayers find they don’t qualify for the deduction. Further, she said, the county plans to charge taxpayers for any stop-payment fees that the county incurs if taxpayers stop their checks.
“It’s not fair to the rest of the taxpayers that did not do this to have to pay for someone else,” she said.
Simpson said her staff told people who planned to prepay that they should check with their tax preparers, wait until the IRS issued guidance, or both.
“We really warn people about making these payments. People panicked. There were a lot of articles telling people they should do it. We were advising people to talk to their tax preparers,” she said.
Kinrade said he is not prepaying his own 2018 property taxes.
The number of people prepaying has dropped since the IRS guidelines came out, Simpson said.
New York Gov. Andrew Cuomo issued an executive order to remove any provisions that would stop taxpayers from prepaying their 2018 property taxes. He said he was doing it to circumvent the tax bill, which he described as partisan. “This is now red vs. blue. They are using New York, California and the other blue states to finance the tax cuts in red states,” Cuomo said, according to the New York Times.
Charles Forrest, a Wilson County resident, said he contacted Gov. Roy Cooper’s office asking the Democrat to take similar action in North Carolina.
“I wanted to know if our Democratic governor was willing to follow suit,” Forest said. “It’s a short window through the end of the year. Whatever they’re going to do, they need to hop on it.”
A spokesman for Cooper said he is looking at the new law.
“Gov. Cooper understands that many North Carolinians are concerned about losing deductions under Republican tax changes and the administration will continue to examine impacts of the law,” Ford Porter said in an email.
Brian Murphy: 202-383-6089, @MurphinDC