Property Taxes and The New Federal Tax Law

Unlike in some other states, homeowners in Wisconsin can’t prepay their December 2018 property tax bill to try to work around the new federal income tax law, city treasurers say.

City of Madison Treasurer Dave Gawenda said he’s been receiving five to 10 phone calls and emails an hour from homeowners anxious to know whether they can jump a year ahead and pay right now and try to claim a deduction for the property tax bills that won’t show up until December 2018.

Homeowners in other states such as New York, New Jersey and Massachusetts have been doing just that as a way to potentially get around new limits on federal income tax deductions that were signed into law by President Donald Trump.

It’s not at all clear whether taxpayers in those other states will succeed, but in Wisconsin it is already clear that state law prohibits homeowners from prepaying their property taxes that early.

“I’ve been getting tons of phone calls and emails about it but it’s not possible in Wisconsin,” Gawenda said.

The new federal law increases the standard income tax deduction but limits to $10,000 the amount of state and local taxes that filers can deduct from their federal tax bill. That could limit the amount of deductions for some homeowners, especially those with upper-end homes in higher-tax areas.

In Madison alone, Gawenda said, there are thousands of homeowners who pay more than $10,000 in annual property taxes — and that doesn’t even count their state income taxes.

In a news conference Wednesday, Milwaukee Mayor Tom Barrett pointed to other states that made changes to allow people to prepay their December 2018 taxes.

“It is unfortunate that the state of Wisconsin has not taken action,” he said.

It may not matter in the end. Later Wednesday, the federal Internal Revenue Service said that prepayments of December 2018 property taxes would only be deductible if homeowners get their exact local tax bill — not an estimate.

Providing taxpayers with an exact bill a year in advance will likely prove difficult if not impossible for most local governments. But in Wisconsin, it’s a moot point.

Also Wednesday, Gov. Scott Walker released part of a state analysis on the impact of the federal law on a married couple in Wisconsin with two children and the projected 2018 median income for that demographic group of $94,742. The median tax cut for families of this size that make $500 above or below this income level is projected to be $2,508, according to the Walker administration.

In a statement, Walker said that amounted to more than $200 a month for these particular families.

Most Wisconsin taxpayers will see a tax cut in 2018, the Institute on Taxation and Economic Policy has found.

However, the tax cuts for individuals and families are set to expire in 2025 under the bill. Without further action by Congress, lower and middle-income taxpayers in Wisconsin are projected to see a tax increase on average in 2025, the group has said.

The effects on a given family will vary widely depending on their circumstances and taxpayers need to see an accountant or do their own research to see how they’ll be affected.

On the issue of property taxes, Gawenda and other city officials like Milwaukee Deputy Treasurer Jim Klajbor and Wauwatosa Finance Director John Ruggini pointed to a state law that says homeowners can’t prepay property taxes until Aug. 1 of the tax year in question.

A spokeswoman for the Wisconsin Department of Revenue, Patricia Mayers, confirmed that the city officials are correct.

The revenue agency sent an email to local treasurers on Friday that cited “an increased number of inquiries” about the issue and said prepayment of 2018 taxes could only be made from “August 1, 2018 to December 17, 2018.”

“Property owners cannot pre-pay December 2018 taxes at this time,” the email reads.

The property tax deduction is only available to taxpayers who itemize their deductions for expenses such as state and local taxes, mortgage interest, medical costs and charitable contributions. In 2016, about 30% of Wisconsin residents itemized their property taxes for federal tax purposes, according to state data on tax returns filed electronically.

Homeowners who pay their December 2017 property taxes before the end of the year can still deduct that payment on their 2017 income taxes that they will file in the spring of 2018. That’s because the federal law doesn’t change the way the tax system works until 2018.

In light of that, Barrett urged Milwaukee homeowners to pay their December 2017 property taxes this week if they think they might need to deduct them.

At City Hall in Milwaukee on Wednesday, taxpayers like Wayne Quinn were uncertain how the federal tax bill would affect them. Quinn, an 80-year-old south side resident, said he was waiting to pay his bill just to “get it done.”

“I take it to an accountant. They do it for me,” Quinn said of his taxes, adding he had “no idea” how they would change.

Starting in 2018, fewer people will need to itemize because of the federal law. The legislation nearly doubled the standard deduction to $12,000 for individuals, $18,000 for heads of household and $24,000 for married couples.

Gawenda said that the passage of the federal tax law so late in the year didn’t leave time for state legislators to tweak Wisconsin law to adjust to these changes. His own office would have also needed two to four weeks to set up a different system for accepting early prepayments of property taxes, he said.

“It was done in a hurry without a lot of sharing of what was in it,” Gawenda said of the federal law. “It’s a shame that there wasn’t any more time for planning.”