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The new tax bill (Federal, United States) allows only a $10,000 deduction for 2018 for state income tax plus real estate tax. There was considerable backing and forthing on this as the tax bill neared completion, but that was the final result.

Then, just as myriads of home owners prepared to prepay their 2018 real estate taxes, the IRS (if I remember correctly) said, no you can't do that. More backing and forthing. Then the ruling was that you could prepay real estate taxes if the jurisdiction in which you lived allowed you to do so. So now it was not a federal decision, or, in some cases, not even a state decision. People scrambled to find out what their county allowed, and many column inches were published in the Washington Post (WP) explaining what was what for Maryland, Virginia and the District.

We had sent off our check before the not-so-final word was reported in the WP, and, guess what? Our county, in a state that did not allow prepayment, cashed our check and recorded the first (of two) payments for 2018 as paid. Naturally, we took the deduction on our 2017 return.

My question is: What did the IRS finally decide to do? Enforce the rule (see bolded sentence above). or decide it was a low priority and/or too much work to enforce?

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  • Those are all separate questions in here - 1) Whether that particular county accepted the payment; 2) Whether IRS considers that payment tax-deductible; and 3) Whether IRS actually enforces that rule, and catches those who claimed a deduction they were not eligible for.
    – void_ptr
    Sep 21, 2018 at 21:11

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Was this confusion ever officially resolved, or did the IRS just decide to forget about the controversy and let people do what they wanted to do?

The IRS conclusion was that you could deduct prepaid 2018 property taxes if they were both assessed and paid in 2017. If your county did not assess them until 2018 or did not accept prepayment then you were not supposed to claim the deduction.

Odds are many people did this erroneously due to ambiguity/confusion. The IRS doesn't audit a large percentage of returns, but they have plenty of time to do so (in most cases they can audit up to 3-years back). It could be that a small enough percentage of people incorrectly deducted property tax pre-payment that it will only come up in a handful of their random audits.

It seems unlikely, but if they wanted to they could certainly target returns with property tax deductions in excess of expected based on the filers home address in counties that didn't allow pre-payment and do targeted audits.

If your return was erroneous, it's your obligation to file an amendment, not wait to see if the IRS finds out.

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