TO: Client File
FROM: Unixlab Plus, LLC
DATE: September 18, 2026
SUBJECT: Timing rule for deducting real property taxes on a purchased home

FACTS

  • Client Jane Doe purchased a home in Fairfax, VA during 2025.
  • At closing, the client paid $529.67 in property taxes, per the closing statement and the City of Fairfax tax payment history.
  • No other property tax payments were made by the client in 2025.
  • The client called the City of Fairfax, and a city representative advised that she should “enter everything that has an invoice before tax day” for 2025 tax purposes — i.e., report taxes based on the invoice/billing date, not the payment date.

ISSUES

  • Is an individual cash-basis taxpayer entitled to deduct real property taxes based on the date the tax bill is invoiced, or only for the amount actually paid during the taxable year, under IRC § 164?
  • Relatedly, can a taxpayer deduct a payment made toward a future tax year’s liability before that liability has been assessed or billed?

ANALYSIS

General Rule

IRC § 164(a)(1) allows a deduction for state and local real property taxes: “the following taxes shall be allowed as a deduction for the taxable year within which paid or accrued… State and local, and foreign, real property taxes.”

The implementing regulation, Treas. Reg. § 1.164-1(a), clarifies that this timing is tied to the taxpayer’s own accounting method: “Only the following taxes shall be allowed as a deduction under this section for the taxable year within which paid or accrued, according to the method of accounting used in computing taxable income.”

Individual taxpayers are almost universally cash-method taxpayers, so for them, “paid or accrued” effectively means “paid.” The same regulation goes on to state directly that “the deduction under section 164 is in the amount actually paid with respect to the qualified tax, rather than the amount accrued with respect thereto, during the taxable year.” In other words, an invoice, bill, or assessment notice does not itself create a deduction for a cash-method individual — only the taxpayer’s actual payment does.

The Deduction Requires Both Payment AND Assessment

Payment alone is not sufficient. The tax must also be imposed, or assessed, before it can be deducted — a taxpayer cannot deduct a payment made toward a future tax liability that the taxing authority has not yet assessed, even if the payment is made and even if the taxpayer knows the tax will eventually be owed.

The IRS confirmed this two-part requirement directly in IR-2017-210, IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017 (Dec. 27, 2017), issued after many taxpayers rushed to prepay 2018 property taxes ahead of the new $10,000 SALT cap: “whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes… depends on whether the taxpayer makes the payment… and the real property taxes are assessed” in the same year. The IRS explained that “state or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed,” and that “a prepayment of anticipated real property taxes that have not been assessed… [is] not deductible.”

The IRS reaffirmed this position the following year in an information letter, described as its “longstanding position”: if a state or local taxing jurisdiction imposed the tax on real property by year-end, amounts paid toward it are deductible; if the tax was not yet imposed by year-end, “the requirements for the deduction under Section 164 are not satisfied in that year, and the deduction is therefore not allowable.”

Application to a Home Purchase — The § 164(d) Apportionment Rule

When real property is sold during a real property tax year, IRC § 164(d)(1) requires the tax for that year to be apportioned between the buyer and seller based on the number of days each held the property, regardless of which party actually remits the payment to the taxing authority. This apportioned amount is what typically appears as a prorated tax credit or charge on the closing statement, and it necessarily reflects a tax that has already been assessed for the current tax year by the time of closing.

IRS Publication 530 summarizes the practical effect for a home buyer: “You can deduct real estate taxes imposed on you. You must have paid them either at settlement or closing, or to a taxing authority… during the year,” and confirms that the buyer is treated as paying taxes only “beginning with the date of sale.”

Escrow Payments Are Treated the Same Way

If the client’s future property tax payments are made through a mortgage servicer’s escrow account, the same “actually paid” rule applies at the servicer level, not the client’s level: amounts deposited into escrow are not deductible until the servicer actually remits them to the taxing authority. Amounts sitting in escrow at year-end are not yet “paid” for § 164 purposes.

Application to Current Facts

Here, the $529.67 paid at closing in 2025 represents the client’s apportioned share of property tax for the portion of the 2025 real property tax year she owned the home, consistent with IRC § 164(d)(1) and the closing statement. That amount was both assessed (as part of the current, already-imposed 2025 tax) and paid in 2025, so it satisfies both required elements and is deductible on the 2025 return.

By contrast, if the client were to simply pay next year’s tax before the taxing authority has billed or assessed it, that payment would not be deductible in the current year, even though cash actually changed hands. Under IR-2017-210 and the IRS’s consistent position, payment alone is not enough; the tax must also have been imposed or assessed by the taxing authority before the payment is made. A payment made purely in anticipation of a future assessment is treated as a deposit, not a payment of a tax, until the taxing authority actually assesses that liability — at which point the deduction becomes available, in the year of assessment (assuming payment has also occurred by then).

The city representative’s advice to include “everything that has an invoice before tax day” describes a different concept — likely referring to the city’s own billing or assessment cycle for local property tax administration purposes — and does not fully reflect the federal income tax deduction rule under IRC § 164, Treas. Reg. § 1.164-1(a), and IR-2017-210. The client should not deduct the full annual tax bill in 2025 merely because it was invoiced or assessed for 2025 without regard to payment, nor should she assume that simply prepaying an unassessed future tax bill in 2025 would make it deductible in 2025.

CONCLUSION

The client will more likely than not be limited to deducting the $529.67 actually paid and already assessed in 2025. The full 2025 property tax bill, to the extent unpaid until 2026, is not deductible until the year of actual payment. Separately, any amount the client might pay toward a future, not-yet-assessed tax year (for example, prepaying 2026 taxes before the city has billed them) would not be deductible until the year the tax is actually assessed by the city, even if paid earlier, consistent with IRC § 164(a), Treas. Reg. § 1.164-1(a), IRC § 164(d), and IR-2017-210.

Recommendations:

  • Deduct only $529.67 as the 2025 real property tax paid, per the City of Fairfax tax payment history.
  • Advise the client that the city representative’s “invoice date” guidance applies to local billing administration, not the federal tax deduction timing rule.
  • Advise the client not to prepay any 2026 property tax bill before it has been assessed/billed by the City of Fairfax if the goal is to accelerate the deduction into 2025 — such a prepayment would not be deductible until the year the city actually assesses that tax.
  • Confirm whether 2026 property tax payments will be made directly or through mortgage escrow, so the correct payment (not invoice) date can be tracked for the 2026 return.