Governor Murphy Signs Workaround
Earlier this month New Jersey Democratic Governor Phil Murphy signed into law a measure that would allow property owners to donate up to 90 percent of their tax bill to charitable funds set up by municipalities in exchange for tax credits.
This in effect would allow New Jersey homeowners to pay their property taxes as a charitable contribution as a way to mitigate the $10,000 cap on state and local taxes under the new bill signed by President Trump. A key component of the law enacted by Governor Murphy would give municipal and county governments and school districts the legal authority to create special charitable accounts to assist in paying for municipal services like public safety, education, and road maintenance, which are usually funded through property taxes.
What still needs to be addressed is how to write the complicated regulations that will allow the charitable funds to function as intended by this law. The one big issue that hasn’t been addressed is how to handle the property taxes that are not directly sent to a municipal tax collector’s office, but instead paid through a mortgage company via an escrow account.
The biggest roadblock to this law will be the issue of whether the Internal Revenue Service will actually let this stand. Governor Murphy and New Jersey legislators have been very straight-forward in their comments that this law is designed as a tax loophole for New Jersey residents as a way to get around the new federal tax law that limits state and local deductions to $10,000 a year.
It looks like this matter will come to a head sooner than later as the IRS announced last week that they and the Treasury Department intend to issue proposed regulations. They will address the question of the deductibility of state and local tax payments as states like New Jersey begin to seek ways to work around the limits on the state and local tax deduction imposed by the new tax law.