Energy Conference: Decarbonization - A Business Perspective REGISTER

The Internal Revenue Service (IRS) is warning states like New Jersey that it will not allow them to use charitable deductions to get around the cap on State and Local Tax (SALT) deductions.

The agency issued a notice yesterday stating “that federal law controls the characterization of the payments for federal income tax purposes regardless of the characterization of the payments under state law.”

The warning was contained in a notice that the IRS and the U.S. Department of the Treasury intend to propose regulations addressing the federal income tax treatment of certain charitable contributions for which taxpayers receive a credit against their state and local taxes. What exactly those regulations will or will not allow will not be known until they are made public, the statement has been taken as a warning by most observers.

The Tax Cuts and Jobs Act (TCJA) limited the amount of state and local taxes an individual can deduct in a calendar year to $10,000, a provision that penalizes many taxpayers in states like New Jersey, where taxes routinely exceed that cap. Earlier this year, New Jersey enacted such a work-around.

The IRS statement said only that the regulations would be issued “in the near future.” Updates on the implementation of the TCJA can be found on the Tax Reform page of IRS.gov.

“While we commend the Murphy administration for looking for opportunities to protect New Jersey’s property tax payers who are being hurt by the SALT changes, we must also be looking for comprehensive property tax reforms at this time,” said NJBIA President and CEO Michele N. Siekerka, Esq. “We must establish a plan for how we sustainably fund education in New Jersey and how we carry out local and county government in a way that brings relief from the high cost of New Jersey property taxes.”