Last week, the IRS announced special exceptions for Louisiana residents and businesses affected by the August 2016 floods. According to The Advocate, the IRS will allow those affected “extended deadlines, waived penalties, and quicker request processing” and that “federal disaster assistance is not considered taxable income by [the IRS] or Social Security.”
Taxpayers may need to be proactive between now and the end of the year if they intend to deduct their 2016 property taxes on their 2016 federal income tax returns. Taxpayers that own real property in a flood-impacted parish and deduct property taxes paid for federal income tax purposes should be aware that the timing of 2016 property tax payments, and the ability to deduct 2016 property taxes paid on their 2016 federal income tax returns, may be affected.
Normally, a parish mails its property tax bills in December and the taxpayer (or the taxpayer’s mortgage company) pays the property tax in the year the bill is mailed. Due to the flood, at least two parishes, East Baton Rouge and Livingston, are not mailing property tax bills until 2017. A cash-basis taxpayer, i.e., individuals and many businesses, may only deduct state and local taxes in the year the taxpayer pays the tax. A summary of the status of 2016 property tax bills in East Baton Rouge and Livingston Parish 2016 follows.
East Baton Rouge Parish
The East Baton Rouge Sheriff’s Office is not mailing property tax bills until January 2016. A representative of McGlinchey Stafford spoke with a representative of the East Baton Rouge Sheriff’s Tax Office who confirmed that East Baton Rouge Parish is currently accepting payment of 2016 property tax. Taxpayers whose taxes are not held in escrow by their mortgage companies may pay their property taxes online, by mail, or in person. The East Baton Rouge Sheriff’s Office website contains information about how to pay 2016 property taxes.
It appears that some mortgage companies are aware of the delay in East Baton Rouge property tax bills and they are planning to remit the 2016 property tax payments in December 2016. Taxpayers whose taxes are held in escrow by their mortgage companies should check their escrow statements online and confirm whether their mortgage company remitted their 2016 property taxes. If a taxpayer’s mortgage company has not remitted 2016 property taxes, the taxpayer should contact his or her mortgage company and instruct the mortgage company to pay the 2016 East Baton Rouge Parish taxes before the end of the year.
The situation in Livingston Parish is more problematic than the situation in East Baton Rouge Parish. Livingston Parish has not completed its 2016 tax rolls. As a result, at this time, the Livingston Parish Sheriff’s Office is not accepting payment for 2016 property taxes. McGlinchey Stafford’s understanding is that the Livingston Parish Tax Assessor’s Office does not plan to send property tax notices the end of January 2017 — at the earliest. Nevertheless, an affected taxpayer should consider checking the Livingston Parish Sheriff’s Parish Office’s website towards the end of the year on the off chance the Sheriff’s Office begins accepting payments.
What happens if 2016 property taxes are paid in 2017?
Taxpayers who pay their 2016 property taxes in calendar year 2017 will be able to deduct both their 2016 and their 2017 property taxes (assuming the taxpayer pays 2017 property taxes in 2017) on their 2017 tax returns. The double property tax deduction in 2017, however, may trigger the alternative minimum tax. In addition, McGlinchey Stafford is closely following the potential for federal income tax reform in 2017. Certain federal income tax reform proposals, if enacted, may eliminate a taxpayer’s ability to deduct state taxes. Therefore, the potential exists that a taxpayer may not be able to deduct its 2016 property taxes paid in 2017 if federal income tax reform occurs and is effective for the 2017 tax year.
McGlinchey Stafford has not researched the property tax situation in other parishes impacted by the flood, but it is reasonable to assume that similar property tax issues may arise in those parishes. Therefore, if a taxpayer owns real property in a parish that was impacted by the flood, McGlinchey Stafford recommends that the taxpayer check the parish tax collector’s website or call the parish tax collector’s office to determine whether the tax collector issued property tax bills in a timely manner.