Mortgage Companies Weigh In On The Tax Cuts And Jobs Act

The last-minute passage of a federal corporate tax cut before year’s end created a bit of confusion among taxpayers who want to take advantage of what may be their last opportunity to deduct property taxes. Thousands of Americans scrambled to prepay 2018 property taxes before Dec. 31 in hopes they could take advantage of the property tax deduction one last time before it is scrapped by the new tax code.

The IRS has been a bit vague about whether or not early payments will be accepted, and it may have created a huge headache for local governments and taxpayers.

IRS Clarification

On Dec. 27, the IRS issued a statement saying that only prepayment of property taxes that have been assessed prior to 2018 would be eligible to be deducted from 2017 taxes. In its statement, the IRS specifically mentioned the source of most of the confusion for taxpayers.

“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 IRS said.

In other words, some Americans were able to prepay their 2017 property taxes prior to Dec. 31, but many paid them in error, leaving a huge mess for local governments to clean up.

The Mortgage Sector's Response

Mortgage companies like Quicken Loans have attempted to clarify their position on the prepayment situation, but the details are still a bit confusing for taxpayers.

“Quicken Loans has always paid property taxes by calendar year end [for clients whose loans we service and maintain tax escrow accounts] if the taxes are assessed and payable by Dec. 31,” Quicken said in a statement.

Wells Fargo & Co WFC didn't give advice on property tax prepayment in an informational statement released on the tax bill's impact, but the bank did say aspects of the legislation need further explanation. 

"The impact of these changes will vary depending on each individual’s particular situation. Also, many provisions of this bill are ambiguous and will require clarification. We expect to receive additional guidance over the weeks and months to come."

Audit Risk

Some experts have said that Americans who have attempted to prepay their 2017 property taxes could be at a higher risk of being flagged for an audit due to the confusion and potential lack of consistency between the information the individuals report to the IRS and the information their banks report.

The last-minute changes to the tax code coupled with an unclear explanation from the IRS about who does and doesn’t quality for property tax prepayment will likely make this tax season difficult for federal and local tax officials. Quicken suggests taxpayers not go in it alone this year.

“Quicken Loans strongly encourages its clients to consult with a tax professional before making any ‘timing’ decisions related to the payment of property taxes that could result in substantial differences of overall income taxes owed and/or the timing of such payments, especially in a year, such as 2017, when significant changes to the tax code have taken place.”

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