N.J. homeowners get law to skirt Trump’s lowered tax deductions

New Jersey Gov. Phil Murphy signed legislation last week to let homeowners declare property taxes as charitable donations that are deductible on their annual Internal Revenue Service filings.

The measure is a response to the law signed by President Donald J. 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,” Mr. Murphy, 60, a Democrat, said last 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 Gov. 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. In January, Treasury Secretary Steven Mnuchin 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 charitable deduction was created in 1917 to encourage support of non-profit and charitable groups, with the stipulation that donors were getting nothing in return.

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

(More: Tax bill SALT reduction could raise demand for munis)