Inconsistent dates in the Republican tax bill that President Donald Trump signed into law Friday have stirred debate over whether some people might be able to get an extra break on their state and local income taxes by filing early.
While the answer isn’t clear, the debate illustrates the confusion that could result over potential drafting errors in the bill — which Congress passed into law roughly seven weeks after releasing the first legislative text.
“The conference bill included language that explicitly prevents prepayment in 2017 for 2018 state income taxes,” said Chye-Ching Huang of the left-leaning Center on Budget and Policy Priorities in an email. But “there’s a potential drafting glitch that still makes prepaying 2018 income taxes in 2017 something that’s potentially effective.”
Specifically, the language that appears to rule out benefiting by paying 2018 state income taxes before the end of 2017 is preceded by language that might confine that requirement to tax years “beginning after December 31, 2017.”
Victor Thuronyi, a former tax counsel for the International Monetary Fund, wrote in a blog post that Republican tax-writers’ intent was clear — they want to limit state and local tax deductions to $10,000 starting in 2018 — the final language creates an opening.
“Suppose that someone prepays 2018 tax in 2017, takes a deduction, and the drafting error identified here is not fixed in a technical corrections bill,” he wrote. “If the IRS challenges the deduction and the matter is litigated, how would it turn out? Impossible to say.”
The bill already makes it possible for those who’ll owe state and local property taxes in 2018 to prepay those bills — if their state and local governments allow — to leverage the full deduction. Whether it will also apply to income taxes will depend on how the date question is interpreted — or whether it’s fixed.
Steven Rosenthal, an expert with the Tax Policy Center, a Washington policy group, said in an email that he’s skeptical.
“Taxpayers can pay, and deduct, in 2017 (1) 2017 state income tax and 2017 local property tax liabilities; (2) 2018 property tax liabilities, if permitted by the local government; but probably not (3) 2018 income tax liabilities,” Rosenthal said. He acknowledged the argument on the point, but said he’s dubious about it.
GOP leaders have indicated that technical corrections to the bill will be inevitable. It’s unclear that Democrats will help them.