Few issues animate a neighborhood chat in New Jersey like high property taxes. Consistently it’s among the top three issues of concern for voters in New Jersey. In affluent Bergen County, where homeowners pay almost $25,000 on average in annual property taxes, the new $10,000 federal cap on state and local tax, or SALT, deductions has already slowed home sales, according to builders and realtors.
“I think it’s really diminished the demand for property. I think people are rethinking the choices they’re making in regards to upgrading the houses. It’s an impact, I think, on people moving into this area, where we have already high taxes,” said homebuilder Allen Stiles.
“It starts to look unreasonable. And New Jersey is taxed on every end and we need to get more federal dollars back,” said real estate agent Catherine Bossolina.
“Gutting SALT amounts to a 7 percent tax increase on many of the residents in my district — in the 5th Congressional District in northern New Jersey. According to Moody’s, it’s going to slow growth and decrease property values in New Jersey by 10 percent,” said Rep. Josh Gottheimer.
Incumbent Congressman Gottheimer and his New Jersey colleagues, except for Tom MacArthur, all opposed the SALT cap. They support a workaround Gottheimer helped devise — sort of an end run. It’d let Jersey homeowners donate up to 90 percent of their property tax bill as a charitable contribution in return for tax credits. But the IRS threw a flag on that play in August. It’s proposed new rules to limit those tax credits to just 15 percent. Standing on the lawn of a million-dollar home, Gottheimer announced he’s sent the IRS a letter of complaint.
“This is just a cynical attempt by the IRS to deliver on their own political ends, to build on sticking it to the northeast, like others have,” Gottheimer said.
But, damage done. Even though Gov. Murphy signed a law authorizing the cap workaround, the state warned it “makes no representations with respect to how the IRS will treat property tax creditable contributions to a charitable fund.” In other words, your mileage may vary; proceed at your own risk. Towns put the workaround on hold.
“We really don’t want to set it up, to have the IRS come back to us and say that this won’t be available to our residents, as it’s a pretty large cost to the township. So we’re kind of taking a wait-and-see attitude,” said Wyckoff Committeewoman Melissa Rubenstein.
New Jersey joined several other states in a lawsuit seeking to overturn the cap. Attorney General Gurbir Grewal’s threatened to sue the IRS if it adopts the new rules limiting credits for charitable deductions. There’s a lot at stake — the IRS reports that Jersey homeowners on average take $18,092 in SALT deductions, and a $10,000 cap leaves a big bill.
“For my first time homebuyers, for my seniors who want to stay in their homes, this deduction was crucial for us. So it’s very important that we get it back,” Rubenstein said.
The IRS will hold a public hearing on its proposal to quash the SALT cap workaround. It’s scheduled for Nov. 5 — the day before elections — in case voters need a reminder.