WASHINGTON — This is a column about the tens of thousands of people in the Chicago area who are rushing to prepay property taxes, gambling that the move will earn them a one-time break on federal taxes due next April.
County treasurers in Cook, Lake, DuPage, Will and Kane — all elected officials — are taking politically savvy extraordinary steps to assist their local residents in the hours left to 2017.
A surge in Chicago area payments continued on Thursday.
That’s despite a paragraph of guidance from the Internal Revenue Service on late Wednesday that muddied the waters for federal taxpayers about the circumstances under which they can take the full deduction for prepaid property taxes on their April 2018 federal tax returns.
OPINION
The property tax system in Illinois is confusing. Each of the 102 counties in Illinois has its own set of complicated rules.
The arcane federal tax code is bewildering, even more so now since people are still absorbing the changes in the Republican-authored overhaul of the law President Donald Trump signed on Dec. 22.
So if this whole matter of hurrying to prepay local property taxes in order to maybe reduce your federal tax bill due in April 2018, is migraine inducing to you, well, give yourself a break.
The upside: It’s turning out in this Trump era of extremely polarized politics that there’s nothing better to bring people together in a common purpose — no matter their ideology — than a tax avoidance maneuver to save on federal taxes.
Cook County Treasurer Maria Pappas, a Democrat, will be accepting prepayments at her Cook County building office until the last minute on Sunday, New Years Eve — while the other counties will stop collections at the close of business on Friday.
The surge in prepayments is “unprecedented,” Will County deputy Treasurer Brian McDaniel said.
“We are spending all our time on this,” said GOP DuPage County Treasurer Gwen Henry, who was personally working the lines on Thursday collecting payments.
“We’re inundated,” said Sheila Dvorak, the executive assistant to GOP Lake County Treasurer David Stolman.
Here are the stunning prepaid property tax numbers from a Chicago Sun-Times survey of Chicago area counties as of Thursday:
• Cook County: 63,000 taxpayers prepaying $407 million as of Thursday morning. Last year: 1,775 paid $14.4 million.
• DuPage: 11,000 taxpayers prepaying $126 million. Last year: 100 paid about $1 million.
• Kane County: 4,000 taxpayers prepaying $40 million. Last year: 25 or 30 paid about $250,000.
• Will County: 2,830 taxpayers paying $16.4 million. Last year: payments for 275 parcels totaling about $2.5 million.
Some explanations . . .
At issue: At present, taxpayers can take unlimited deductions for state and local taxes and property taxes. Under a very controversial provision, starting with taxes paid in April 2019, there will be a $10,000 cap for these deductions. Illinois is among the high-tax — and mainly Democratic — states that will be taking a hit under the new tax law.
The IRS: The general guidance will have to be fleshed out to determine if the prepayment tax gambit is applicable. The deduction depends, the IRS said, on whether “the real property taxes are assessed prior to 2018.”
This may be straightforward — or not. Cook, DuPage and other counties in 2017 completed new assessments to be applied to property tax bills mailed in 2018.
“We will have to see what the IRS does,” said Kane County Treasurer David Rickert, a Republican. “I don’t want to speculate on what the IRS will do. I will venture a guess that Congress will probably find a way to address this down the road.”
And if the GOP controlled Congress does not?
“This will be adjudicated in court if it doesn’t get resolved,” said Jim Jaffe, a tax policy expert and former House Ways and Means Committee staffer.
• Who is to blame for this confusion? Congress. In the conference report that accompanies the new tax law, Congress was explicit in stating that one could not prepay state income taxes — but was silent about property taxes.
Lawmakers should have anticipated the IRS concerns and address property tax prepayment.
Congress “could have given explicit guidance” about property taxes Jaffe said. “… If they had put that in the bill, everybody would be a happy camper at this point.”
• What happens to the extra tens of millions of dollars being collected by the counties? The money will be held in escrow, put in short-term investments with the interest likely apportioned among the local taxing districts.
