Democrats on the House Ways and Means Committee on Monday questioned the IRS on the real estate tax fiasco that took place after Congress passed sweeping new tax reforms in late 2017, and whether the agency was targeting taxpayers in blue states by threatening audits, The Hill reports.
Many homeowners in states with the highest property taxes rushed to prepay their 2018 property taxes before 2017 ended in hopes of saving on their federal taxes since the deduction was capped at $10,000 under President Donald Trump's tax reform measures, which was passed in late December.
The IRS said taxpayers could claim an additional property tax deduction on their 2017 returns if taxes were assessed and paid for before the end of the year. Some states and localities allow people to prepay their state and local taxes, including property taxes, but other states and localities that don't had to interpret exactly what that meant for their residents.
"According to the guidance, an individual's property tax liability must be paid in 2017 to be deductible, but it must also be assessed," said Nicole Kaeding, an economist at the Tax Foundation. "Estimating your property tax liability isn't enough. The property tax must be billed too."
Democrats in their letter questioned why the IRS warned taxpayers they wouldn't be able to deduct 2018 taxes on 2017 returns.
"We view this as a clear case of bureaucratic overreach, and now, as a result, many of our constituents are losing a valuable deduction — and consequently part of their hard-earned income," they wrote.
They were also confused on why Treasury Secretary Steven Mnuchin reportedly threatened to enforce the IRS rules through potential audits.
"Now, after this confusing and disorganized process, the Treasury Secretary is indicating that the IRS leadership will pursue aggressive enforcement against these taxpayers," the letter adds. "We are surprised and dismayed at this expression of IRS priorities, and we are angry to read of this naked political payback against taxpayers in 'blue' states."
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