The federal government has made it official: Charitable contributions paid in place of property taxes will not make it onto your federal income tax return as a deduction.
The IRS issued final regulations, first proposed last August, that require taxpayers to reduce their charitable contribution deductions by the amount of any state or local tax credits they receive or expect to receive in return. The final regulations, which apply to contributions made after Aug. 27, 2018, and are effective on Aug. 12, 2019, largely adopt the rules in the proposed regulations.
Taxpayers will still be able to deduct up to $10,000 of state and local taxes, known as the SALT deduction, and other charitable contributions will still be deductible.
The federal government had gone back and forth with high-tax states like New Jersey. The Tax Reform and Jobs Act of 2017 reduced tax rates for almost all taxpayers but eliminated or capped a number of deductions. One was the SALT deduction, which was previously unlimited but capped at $10,000 in the tax reform bill. So now, any state and local taxes paid by New Jerseyans in excess of $10,000 are no longer deduction and will therefore be taxed by the federal government.
Several states like New Jersey tried to get around the cap by allowing local governments to set up charities for their services and provide credits to taxpayers that contribute to them. Instead of paying local taxes subject to the $10,000 federal SALT deduction cap, residents could make “charitable contributions.”
Gov. Phil Murphy issued a statement accusing the IRS of protecting “President Trump’s politicization” of the federal tax code.
“Finalizing a rule that prohibits us from following decades of precedent to protect our residents’ tax deductions is a gut-punch to middle-class families who know that the Trump tax plan is a complete sham,” Murphy said. “We will continue to fight alongside our Congressional delegation and sister states to restore our residents’ full SALT deductions.”
The regulations provide exceptions for dollar-for-dollar state tax deductions and for tax credits of no more than 15 percent of the amount transferred. As the IRS explained: A taxpayer who receives a state tax deduction of $1,000 for a contribution of $1,000 is not required to reduce the federal charitable contribution deduction to take into account the state tax deduction; and a taxpayer who makes a $1,000 contribution is not required to reduce the $1,000 federal charitable contribution deduction if the state or local tax credit received or expected to be received is no more than $150.
Did Murphy seriously think his tax scam would work?
Gov. Phil Murphy criticizes federal government, simply because NJ can’t use a gimmick to circumvent the tax code. He’s obviously thinking it will somehow diminish any criticism on the state’s irresponsible addiction to spending. He refuses to continue Gov. Christie’s arbitration caps, municipal spending caps, seek pension reform, or cut discretionary spending.
There are 42 states that are able to live within the federal SALT deduction. What does it say about the management of the other 10 states, all managed by Democrats? It says people get the goverment they deserve.
There’s a surprise! How much money was wasted on this pursuit?
The SALT limitation was clearly targeted at blue states as a punishment. How about the fact that NJ, as well as the other states suffering the most from the SALT penalty, subsidize the “non-suffering” others through tax collections? According to Wallethub, DE (D), MN (D), IL (D), NE (R), all get less than 50 cents in Federal aid for every dollar paid in Federal taxes. OH (R), KS (R), NY (D), CO (D), UT (R), NJ (D), OK (R), WY (R), MA (D) & CA (D), all get between roughly 60-95 cents for every dollar in taxes paid. [ (D) = Voted Democrat in 2016, (R) = voted Republican in 2016 ]. Notice a pattern here? And the 5 states hit the hardest by the SALT cap? CA (D), MA (D), ME (split delegates), NJ (D), NY (D). All of these states, except for Maine already get less from the FED than put in. It is about to get much worse. And for the winners in the tax game? SC, ND, FL (all Republican) get anywhere from $4.50 to almost $8.00 in aid from the Fed for every tax dollar collected. Crazy! And the next 8 states on the list, 6 of which are Republican, get anywhere from $2.00 to almost $3.50 in aid for every dollar paid in taxes. Arguably, this disproportionate payout enables these net winners to keep their taxes lower – and forces the losers to maintain their high taxes or raise their taxes to fill the gaps. The net result may be chasing a lot of Dems out of blue states into cheaper red states… Could this one day tip red states blue? That would be justice.
Dave, NJ had 8 years+ to get its fair share under the previous fedadmin, we had a blue majority there on several occasions. It means the local officials here and other blue states should start doing there jobs rather than playing a blame game. Enough excuses already, start doing their jobs and get some of the money back rather than poopooing about someone else causing our overspending disaster here. I’m pleased to see the NJ Sen President is finally taking a stand on this.
murphy complains about the $10k cap. Hmmm. Is there not a cap on the NJ tax return for SALT exemptions that was just raised from $10k to $15k?