N.J. Warns IRS Against Banning Property Taxes as Charitable Gift

(Bloomberg) -- New Jersey Attorney General Gurbir Grewal warned the Internal Revenue Service that he will fight any challenge to a law that preserves state and local property-tax deductions.

Grewal’s letter to acting Commissioner David Kautter was in response to an IRS notice issued Wednesday that said taxpayers must adhere to federal law when filing. New Jersey Governor Phil Murphy on May 4 signed legislation to allow local governments to establish non-profit funds that will accept property-tax payments as a workaround to President Donald Trump’s $10,000 cap on deductions. New York Governor Andrew Cuomo signed a similar law last month.

Though the IRS hasn’t expressly banned the practice, Grewal said the notice signaled an intent to do so. New Jersey has the nation’s highest property-tax bills, averaging $8,690 last year.

“I ask you to think twice before going down that misguided road,” Grewal wrote. In all, he said, 33 states have 100 programs allowing people to receive tax credits for donations to governments and non-profits. “The IRS should not play politics. Should the IRS and Treasury Department continue down this path, New Jersey will have no choice but to challenge the new rule in court.”

Sarah Allen, an IRS spokeswoman, said by telephone that the agency had no immediate comment.

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