Trump Tax Reform Hits Home in Wealthy New York Suburbs
(Bloomberg) -- Nick Boniakowski’s clients bought a home in Northern New Jersey in 2016. Now they want to move again.
They found a house they liked. It wasn’t the charm of new construction, an upgrade in location, better schools or a swimming pool that attracted them.
It was the lower property taxes.
Like many of Boniakowski’s clients at Redfin Corp.’s Hoboken office, these two are looking at their returns for the first time since President Donald Trump’s tax changes took effect and, despite more than a year of lead time, experienced a mild freakout. Maybe buying a new house –- the rare financial ordeal that’s more maddening than the annual April 15 ritual –- could be the solution.
Alas, taxes on the house they wanted to buy turned out to be higher than they thought, so they went back to scouring listings.
“It’s a confusing process,’’ Boniakowski said.
The Tax Cut and Jobs Act promised to, well, cut taxes. For many, it does. But a new limit on the amount of state and local levies that can be deducted has costly and confounding implications for some, especially in high-income-tax, high-property-tax places like the New York City area.
Nearly 11 million taxpayers will be affected by the new cap on so-called SALT deductions on the taxes they file this year, and could lose out on a cumulative $323 billion, according to a February estimate from the U.S. Treasury Inspector General for Tax Administration.
For those people, the April 15 deadline carries a greater sense of dread than usual. New rules include a higher standard deduction and changes to the Alternate Minimum Tax, and it can be hard to say, even for experts, how they’ll affect individuals until they file.
The situation wasn’t made any simpler by state lawmakers, who argued that the cap on the SALT deduction was intended to hurt states that tend to elect Democrats, and concocted a series of elaborate workarounds that were shot down by the Internal Revenue Service.
People with more money and thus more complicated tax returns tend to file later in the season, meaning that the triggering has just begun.
“A lot of my clients are very surprised by what’s happening,” said Ann Callari, tax partner at RotenbergMeril, an accounting firm in Saddle Brook, New Jersey. “That’s the nature of taxes. People hope for the best and don’t pay attention. They don’t notice until it affects them.”
In the meantime, plenty of taxpayers are expecting the worst.
Gail Rosen, a certified public accountant, said one client didn’t submit his charitable donations because he assumed that he would take the standard deduction. (He didn’t.) Others have been under-withholding, meaning they could get tax cuts but see lower-than-expected numbers on their refund checks. One client who benefited from a new deduction for business owners found her unexpected refund disorienting.
“She looks at me and says, ‘Oh my god, this is wonderful, who can I thank?’” Rosen said. “I said, ‘Trump.’ It was like she saw a ghost. She didn’t want to hear it.”
Real estate pros, nobody’s first call for tax planning, are stepping into the void. South Florida developers have set up sales offices in Manhattan, angling to lure tax-weary finance workers with the promise of sunshine and no state income tax. Local realtors are highlighting small changes in tax rates that can benefit home buyers who cross town lines.
As Chad Curry, an agent at the Michelle Pais Group at Signature Realty NJ, put it in a recent listing, “Close to Westfield but taking advantage of Mountainside’s low taxes.”
Saddle River, a New Jersey Republican stronghold where Richard Nixon once owned a home, went so far as to hire a public relations firm to pitch the town as the Palm Beach of Route 17 -- a local tax haven that keeps levies lower than neighboring municipalities because of a lack of sidewalks, professional firefighters and a public high school.
“You don’t need all of that stuff,” said Mayor Al Kurpis, whose day job is dentist.
For those who don’t want to move, the obvious solution is to complain -- ideally to a tax court. Michael Schneck, the managing member of a Livingston, New Jersey-based firm that bears his name, has been fielding calls from homeowners who want to appeal their property taxes. Some of them may even have a case.
“Homes over $3 million are seeing a significant slowing of sales and reduction of offering prices,” Schneck said.
That may be because savvy shoppers are factoring in the new limit on the SALT deduction, or simply that the market for luxury homes is cooling after a period of rapid appreciation. In either case, a slowing market gives affluent homeowners an avenue to lowering their levies -- eventually.
“What is the impact of the loss of the deduction on market values?” Schneck asked.
It was a rhetorical question. For many, it’s still too early to say.
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