New Jersey took the first step toward allowing residents with the nation’s highest property taxes to circumvent a new federal limit on state and local tax deductions.
The Senate voted 28-9 to allow municipalities to set up charitable funds to which homeowners would pay their annual levy. Those payments would qualify for a federal tax write-off, a boon for high-cost states whose residents are most burdened by the $10,000 cap on state and local property tax deductions signed into law by President Donald Trump in December.
California, Nebraska, Virginia and Washington state also are considering such legislation, according to the National Conference of State Legislatures, a Washington, D.C.-based lobbying group.
Average New Jersey property taxes hit a record $8,690 in 2017, according to the state community affairs department. Governor Phil Murphy, a Democrat whose party controls both legislative houses, has said he supports the measure. The bill also must be approved by the Assembly before it heads to his desk.
“The genesis of a charitable contribution is you have to give something and get nothing back in return,” Senator Steve Oroho, a Republican from Franklin, Sussex County, said on the Senate floor. “It’s going to be a pretty high bar for our residents to defend on their tax return.”
Senator Paul Sarlo, a Democrat from Wood-Ridge who sponsored the bill, said it was worth trying. “Losing that SALT deduction is a killer,” he said during debate.
Even if the bill becomes law, the U.S. Internal Revenue Service has no provision for such a maneuver, and Treasury Secretary Steven Mnuchin has called the effort “ridiculous.”
“I hope that the states are more focused on cutting their budgets and giving tax cuts to their people and their states than they are on trying to evade the law,” he told reporters on Jan. 11.
—With assistance from Patrick Clark