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New Jersey residents would be able to prepay their property taxes, and school districts could create charities that issue property tax credits under legislation moved forward in the state’s Legislature April 12.
The bills are two of many legislative fixes in New Jersey written to ease tax burdens under the 2017 federal tax act ( Pub. L. No. 115-97). The new federal law caps the state and local tax (SALT) deduction at $10,000 and lowers the amount of mortgage interest that can be deducted. The changes are raising anxiety for New Jersey residents, who pay the highest property taxes in the country.
S.1893 would allow a municipality, county, or school district to establish charitable funds for specific purposes and permits property tax credits for certain donations. The bill passed the Senate April 12 by a vote of 23-12 and the Assembly by a vote of 68-1 with three abstentions. It earlier passed the Senate 28-9 in February.
Gov. Phil Murphy (D) supports the proposal, although U.S. Treasury Secretary Steven Mnuchin has cast doubt on such workarounds and has threatened to audit taxpayers who use them. IRS Publication 526 says that taxpayers can’t deduct as a charitable contribution any payment for which they receive a benefit in return. Similar charity-based workarounds are pending in New York and California, among other states.
“Will it be challenged in court? Of course it will,” Assemblyman John McKeon (D) said during the floor discussion. But the state’s Attorney General is prepared to defend the legislation, he said.
Assemblywoman Holly T. Schepisi (R) warned against “shell games” that could lead New Jersey residents down “a dangerous path” rather than looking for ways to reduce property taxes.
“We may lead a taxpayer into an unfortunate position of owing back taxes, interest, and penalties,” warned Assemblyman Michael Patrick Carroll (R), who nevertheless said he would vote in favor of the bill.
A. 3382 would permit taxpayers to make dedicated prepayments toward anticipated property taxes. It attempts to eliminate confusion by explicitly clarifying that New Jersey taxpayers may prepay property taxes regardless of whether the municipality issued quarterly tax bills prior to prepayment.
The Assembly concurred with the governor’s recommendations on A. 3382 and passed the bill by a vote of 73-0 on April 12.
The Senate also unanimously passed the measure 33-0 on April 12.
Residents in many high-tax states started prepaying their 2018 taxes in late 2017 in the hope that they would be deductible. However, the Internal Revenue Service said in late December that taxpayers could only deduct 2018 property taxes on their 2017 tax returns if the levy had been assessed by local officials in 2017.
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