New Jersey sets rules for dodging U.S. limit on SALT deductions

New Jersey has set the rules for how residents can make an end run around the $10,000 federal limit on state and local tax deductions -- even though the Internal Revenue Service is determined to shut it down.

The cap on SALT deductions, which was enacted as part of the Tax Cuts and Jobs Act, has been particularly unpopular in high-tax states like New Jersey, Connecticut, New York and California, and has prompted some of them to create rules like those just set by New Jersey.

Towns, counties and school districts in New Jersey can establish charitable contribution funds to collect taxes for education, emergency operations, libraries, trash pick-up, road repair and other local services. In turn, property owners may receive a credit of up to 90 percent of their contribution, deductible as a charitable expense.

Daniel Acker/Bloomberg

The workaround, though, may be short-lived, because the IRS has proposed rules limiting such a credit to 15 percent. New Jersey, New York, Connecticut and Maryland sued President Donald Trump’s administration in July, claiming the state and local tax deduction, or SALT, unfairly punished Democratic strongholds that have higher housing prices and property taxes.

“If and when the IRS finalizes its rules, we’ll see them in court,” New Jersey Attorney General Gurbir Grewal said in a statement.