N.J. Homeowners Get Law to Skirt Trump's Lowered Tax Deductions

(Bloomberg) -- New Jersey Governor Phil Murphy signed legislation to let homeowners declare property taxes as charitable donations deductible on their annual Internal Revenue Service filings.

The measure is a response to the law signed by President Donald Trump that lowered state and local tax deductions to $10,000, a pittance in New Jersey, which has the nation’s highest property taxes.

“It is, to be clear, a de facto tax hike,” Murphy, 60, a Democrat, said on Friday at a press conference. “It is divisive, it is wrong and we will continue to fight.”

Local governments can now set up charitable organizations to accept property-tax payments, and homeowners can declare those “donations” as gifts to offset federal taxable income.

While New York Governor Andrew Cuomo signed similar legislation last month, and states including Connecticut and California are considering it, it’s not certain whether the move would withstand challenges by the IRS. Treasury Secretary Steven Mnuchin in January called the workaround “ridiculous.”

Sarah Allen, an IRS spokeswoman in Washington, referred to a Dec. 27 release stating that property owners who prepaid 2018 taxes in 2017 could deduct that payment under some circumstances. The agency, though, hasn’t publicly opined on whether it would challenge a new class of charitable “giving.” The deduction was created in 1917 to encourage support of non-profit and charitable groups, with the stipulation that donors were getting nothing in return.

Murphy, alongside U.S. Senator Bob Menendez, a fellow Democrat, signed the legislation in Rutherford, 13 miles (21 kilometers) from Manhattan, where the average home valued at $430,100 has an $11,500 tax bill. The state average was $8,690 in 2017.

To contact the reporter on this story: Elise Young in Trenton at eyoung30@bloomberg.net.

To contact the editors responsible for this story: Flynn McRoberts at fmcroberts1@bloomberg.net, Stacie Sherman, William Selway

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