WASHINGTON – Ten members of Congress are proposing bipartisan legislation that would allow all homeowners who prepaid their 2018 property taxes to deduct them on their 2017 federal tax returns.
The SALT Prepayment Deducibility Act (H.R. 4803), introduced by Rep. Leonard Lance, R-N.J. on Jan. 16, is the latest effort to bypass the new $10,000 cap on the deductibility of state and local taxes that was in the tax law changes enacted in December.
Two New York lawmakers, Reps. Peter King, a Republican, and Nita Lowey, a Democrat, introduced legislation (H.R. 4740) on Jan. 8 to repeal the 10,000 limit on the SALT deduction.
House Ways and Means Committee Chairman Kevin Brady, R-Texas, told reporters the King-Lowey bill won’t be considered but he hasn’t commented on this new narrower proposal.
All 10 House members who are sponsoring the new bill are from New Jersey and New York, which are among the states most affected by the new cap.
The average SALT deduction claimed in 2015 was $22,169 in New York, $19,665 in Connecticut, $18,438 in California and $17,850 in New Jersey, according to the Tax Policy Center.
New Jersey’s wealthiest counties near New York City pay much higher taxes, with taxpayers in Bergen County claiming an average SALT deduction of $28,257.
The Internal Revenue Service issued a notice Dec. 27 that said that taxpayers who prepaid their 2017-2018 property taxes in 2017 will be allowed to deduct the full amount.
However, the IRS said that taxpayers who prepaid 2018-2019 property taxes in 2017 will not be allowed deductions if their governmental jurisdiction had not yet assessed the property tax.
The bill introduced by Lance would allow all 2018 prepayments made in 2017 to be deducted.
Lance said the IRS guidance disallowing some 2018 prepayments “isn’t fair.”
“Our legislation instructs the IRS to allow full deductibility to protect New Jersey taxpayers,” he said.
Rep. Josh Gottheimer, another New Jersey House member who is the sole Democrat among the original sponsors, is also working with his state’s new governor, Phil Murphy, to create state and local tax credits that could be used to bypass the $10,000 cap.
Mayors in Fair Lawn, Paramus and Park Ridge told NorthJersey.com earlier this month that they plan to propose establishing local charitable funds to their governing bodies in the coming weeks. The newspaper reported that local officials are concerned residents are moving out of the state and property values are declining as a result of the federal tax overhaul.
Thirty three states, including California, already have 113 different tax credits that can be deducted on federal taxes, according to a recent report by eight law professors from six law schools
Besides New Jersey, California also may consider expanding the use of a tax credit as a workaround of the new cap on SALT.
The Protect California Taxpayers Act (SB 2267) proposed by California Senate President pro Tempore Kevin de León, D-Los Angeles, would establish a 100% state tax deduction for donations to the California Excellence Fund, which, in turn would help fund state government.
De Leon already is the author of another tax credit. Californians can claim a 50% tax credit for donations to the College Access Tax Credit Fund.
Treasury Secretary Steven Mnuchin labeled those efforts as “ridiculous” during a White House news briefing held Jan. 11 to announce new payroll withholding tables to reflect the lower tax rates.
“From the Treasury standpoint and IRS, I don’t want to speculate what people will do, but I think it’s one of the more ridiculous comments to think that you can take a real estate tax that you are required to make and dress that up as a charitable contribution,” Mnuchin said. “I hope that the states are more focused on cutting their budgets and giving tax cuts to their people in their states than they are on trying to evade the law.”
Gottheimer responded to the Treasury secretary with a Jan. 12 letter defending the effort. “It’s not tax evasion if states are not finding provisions of existing law to lower the taxes on our residents,” he wrote.
The letter said that the Treasury secretary “should know better than most about high taxes” based on his background as a New Yorker and as a Californian.
“We should all look for any way to cut taxes and make life affordable for our people and businesses,” Gottheimer wrote.