On May 4 in East Rutherford, Governor Murphy signed S-1893, which permits municipalities, counties, or school districts to establish one or more charitable funds, each for a specific public purpose; and permits property tax credits in association with certain donations. This legislation is a response to the new cap on the Federal SALT property tax deduction. New Jersey’s new law will take effect on July 3, 2018. The state is in the process of drafting rules to implement the law. We will continue to share updates as they become available. For more on the new law please read our earlier Town Crier blog post.
Yesterday, the Federal Treasury Department and Internal Revenue Service (IRS) announced their intentions to propose guidance on payments made in exchange for State and Local Tax Credits.
While it is premature to fully assess what the impact of this IRS guidance will be, it appears that the agency is seeking to prohibit the legislative intent of S-1893. We call your attention to this language:
Despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes.
Governor Murphy immediately offered a comment indicating that the State may challenge any regulations that will invalidate the new State law.
We will continue to advise you of all developments related to this issue.