Prepaying Taxes May Not Help New Hampshire Residents

Dec 29, 2017

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New IRS advice on prepaying property taxes for 2018 suggests New Hampshire residents may not be able to deduct those prepayments from this year's tax bill – but lots of homeowners in towns that allow prepayments are trying anyway.

Durham town administrator Todd Selig has fielded a flurry of questions about tax prepayments, in what’s normally a quiet week between Christmas and New Year's.

"In our 285-year history ... we've never had a demand for a prepayment of taxes,” he says. “This was really a non-issue for us until the Republican tax bill was unveiled in the days leading up to year-end.”

The new law lowers to $10,000 the cap on what state, local and property taxes people can deduct. In expensive areas, such as the Seacoast, that could cost some homeowners thousands.

But the new limit doesn't take effect until next year – so some residents want to prepay their taxes by New Year's, to use the higher deduction cap one last time.

New Hampshire law says towns can opt to let people prepay up to two years of property taxes. But that does not mean prepaid taxes will qualify for the old deduction.

The latest IRS advice says people cannot deduct taxes paid in 2017 if they don't have a 2018 property tax assessment. That means you'd need to have next year's assessment now to use the loophole.

Some states have already done their assessments for 2018, but that's not the case in New Hampshire. This state's 2018 assessments won't be out until late spring of 2018.

All the assessing and billing and deducting takes place within each calendar year, according to Selig. He says Durham chose this week not to allow prepayments at all, in part because of this.

"The concern we had was, where the 2018 tax bills have not yet been assessed by cities and towns, we weren't sure how somebody could claim that they were assessed in 2017 for future years,” he says.

Nearby Rye has taken a different approach. The town's Board of Selectmen, or BOS, voted to allow prepayments this week.

But town clerk and tax collector Donna Decotis says they've issued a disclaimer to the 60 people who've used the option so far, and many more who’ve inquired about it locally and from second homes around the country.

"The BOS wishes to advise those taxpayers that do choose to prepay their property taxes that this action should not be interpreted to mean that it is an allowable deduction under IRS rules and regulations,” Decotis read from the town’s statement.

She says people should get a second opinion from a tax professional, but she's giving them until New Year's Eve to postmark their prepayments if they still want to make them.

As for what happens if people find they can't deduct as planned, and want a refund? Decotis says she doesn't know yet how the town would handle that.

The state statute on prepayments only allows refunds through formal tax abatements.