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New Jersey should allow its residents to convert their property taxes to charitable contributions as a workaround to the new federal tax law, Gov. Phil Murphy (D) said Feb. 8.
Municipalities in New Jersey should allow their residents to convert property tax payments to charitable contributions, and the Legislature should pass a bill to ensure the workaround is legal, Murphy said Feb. 8 during a keynote speech at the New Jersey Conference of Mayors’ winter summit in Trenton.
“I call upon the Legislature ... to send to my desk as fast as possible a bill to ensure municipalities can, without any state roadblocks, create the charitable funds needed to implement this program,” Murphy said. “I will sign it immediately.”
New Jersey is among several states, including New York and California, that are exploring charitable contributions as a way to mitigate increased state and local tax burdens under the 2017 federal tax act ( Pub. L. No. 115-97). Under the new law, taxpayers who itemize deductions on their federal return may deduct up to $10,000 in state sales, individual income, and property taxes. Previously the deduction was unlimited.
“The federal government threw us a screwball in the form of the new tax law,” Murphy said. “By instituting an immediate $10,000 cap on the state and local tax deduction, otherwise known as SALT, many of our residents are being hit before we can even begin our efforts to reduce their property tax burden.”
The changes to the federal tax code leave New Jersey with high property taxes and a limited ability to deduct them from federal liabilities, Murphy said, adding that New Jersey residents need immediate relief from “this gut punch from Congress and President Trump.”
Thirty-three states already have systems in place that allow taxpayers to make charitable contributions in exchange for up to a dollar-per-dollar reduction in taxes, Murphy said.
“Shifting property tax payments to a charitable contribution system not only preserves your local revenues, it also provides residents with significant deductibility from their federal income taxes,” Murphy told the gathering of mayors. “Bringing this concept to New Jersey’s new reality could have a tremendous and immediate benefit for our taxpayers.”
But the IRS may scotch the idea. Treasury Secretary Steven Mnuchin, during a Jan. 12 talk in Washington, threatened to target tax audits at residents of states that allow deductions for charitable donations to state charities that provide funding for public services.
IRS Publication 526 says that taxpayers can’t deduct as a charitable contribution any payment for which they receive a benefit in return.
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