IRS Bars Workaround to SALT Cap in NJ

WASHINGTON – The Internal Revenue Service (IRS) issued final regulations June 11, which barred a workaround to the state and local tax cap (SALT) incorporated in the Trump Administration’s signature legislation, the Tax Cut and Jobs Act.
The tax bill set a $10,000 cap on federal deductions for state and local taxes, setting off a scramble in Trenton to craft a workaround. The SALT cap includes income, sales, and property taxes combined.
A major impact in New Jersey is the high level of property tax burden in municipalities and counties across the state. The average state and local property tax bill in New Jersey last year was almost $8,800, which left many state property owners paying more than the new deduction limit.
In Cape May County, the average property tax bill was $5,143, with the highest municipality being Stone Harbor at $8,615, and the lowest being Woodbine at $1,947. These numbers are property taxes only and do not include the individual state income tax burden.
Gov. Phil Murphy signed a bill into law which allows municipalities to set up charitable trusts that would permit taxpayers to make donations to the trust in lieu of paying state and local taxes. The taxpayer would then have a charitable donation deduction in place of the capper state and local tax deduction.
No municipality wanted to be the first to establish such a fund due to the risk that the move could later be undermined by IRS rules.
Murphy issued a statement that the IRS ruling “protects President Trump’s politicization of the federal tax code.” He added that the IRS “is not interested in fairness for New Jersey taxpayers.”
Murphy called the ruling “a gut-punch to middle-class families.” He vowed to continue the fight to restore full SALT deductions.
State Attorney General Gurbir Grewal tweeted June 11, “I remain as committed as ever to challenging the IRS in court.” 
To contact Vince Conti, email vconti@cmcherald.com.