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Will prepaying your property taxes really maximize deductions?

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A sign tells people where to prepay their 2018 property taxes.
A sign posted in front of the the Hennepin County Government Center's real estate service desk informs people that they can prepay their 2018 property taxes in Minneapolis on Thursday.
Evan Frost | MPR News

Thousands of Minnesota homeowners have been rushing to pay next year's property taxes before the end of this year. They've concluded — despite a lack of definitive guidance from state and federal tax authorities — that the early payments could save them serious money, sometimes thousands of dollars, on their 2017 federal tax returns.

The Internal Revenue Service's advice about that strategy has been cryptic and confusing. 

And the counsel from the Minnesota Department of Revenue? It says it is reviewing the IRS "guidance" and encourages taxpayers to consult tax professionals.

Still, at midmorning Thursday about 70 people were lined up at the Ramsey County tax office in St. Paul, including Patricia Eid of Arden Hills.

"We called our accountant and asked him if he recommended that we pay early, and he said, 'Yes,'" she said. Eid and her husband elected to make advance real estate tax payments not just for their Minnesota home but also their Wisconsin cabin.

People line up at the Hennepin County Government Center.
People line up at the Hennepin County Government Center in Minneapolis to prepay their 2018 property taxes on Thursday.
Evan Frost | MPR News

Gretchen Artig Swomley of Gem Lake said she would like to have concrete advice from tax authorities. However, she didn't want to miss a shot at cutting her federal income taxes significantly. Her early property tax payment boosts her itemized deductions for this tax year. She hopes.

"Well, I don't think anybody knows for sure how this is all going to play out," she said. "But if you don't prepay it now, you lose the opportunity to possibly get a benefit from it. And you're going to have to pay it anyway."

Ramsey County appeared to be on track Thursday to top Wednesday's early payments of $4.2 million.

Meanwhile, Hennepin County's total tax take hit nearly $80 million. Most of some 10,000 early payments so far have been made online. 

Hennepin County auditor and treasurer Mark Chapin said it's nice to get all that money early, but he said it will not have a great impact on the budget of the county and other entities that share property tax revenue.

Chapin said the county's overall tax collection is about $2.8 billion. Even if the country took in $100 million early, Chapin figures that might be invested to earn maybe $700,000. So, he said, "the return on that investment is not going to change things substantially."

But the savings for many taxpayers would be substantial. And there's some reason to believe they would be rewarded.

Senate Majority Leader Paul Gazelka, R-Brainerd, sits on the state Senate's Tax Committee. He said he believes that if a local county accepts property tax payments ahead of time, those payments will be tax deductible this year.

"It is not crystal clear," he admitted. "But that's the advice that I have been given from some of the tax experts. I wish it was clearer than that. But that's the clearest advice I've been given to date."

Kyle Spicer is one of those tax experts guiding people on what to do. The CPA said, in general, people may benefit from paying property taxes early if they're not going to be itemizing deductions next year. That's because there will be a $10,000 cap on the deduction of state and local taxes. And the standard deduction for an individual will nearly double to $12,000, for couples $24,000.

Kate Haugen prepays her 2018 property taxes.
Kate Haugen writes a check to prepay her 2018 property taxes inside the Hennepin County Government Center in Minneapolis on Thursday. "It's just so confusing, some people saying one thing and some saying another, might as well get it done," Haugen said.
Evan Frost | MPR News

"If they are not going to get a benefit next year, it makes way more sense to pay these taxes this year because then you get a benefit," Spicer said.

He said prepaying taxes may not make sense for people who have not been itemizing deductions. It might also provide little or no benefit to high-income taxpayers who have been subject to the alternative minimum tax.

Adding to the confusion in Minnesota is a patchwork of policies from county to county on how they'll accept payments.

Some counties are saying they'll take 2018 property payments and credit payment this year if they're postmarked by Dec. 31 or made online before midnight New Year's Eve. Others insist that the payments must be made by the close of business Friday. 

At least a dozen or so Minnesota counties take tax payments online. They also differ in when they say online payments may be credited.

  To accommodate the surge in citizens eager to pay their taxes early, Ramsey County's tax office in St. Paul will be open Saturday, as will Hennepin Country's tax office in the government center in downtown Minneapolis.