With the passage of the overhauled tax code, NJ residents will no longer be able to deduct state and local property, income or sales taxes that total more than $10,000 on their federal tax returns.
So it is expected that as residents end up paying even more in taxes than they already do, property values in New Jersey will decline. Neither Republican Governor Chris Christie nor Democrat State Senator Ray Lesniak want that to happen. They are in agreement that NJ homeowners should be allowed to deduct 100% of their property taxes on their state income taxes.
Lesniak is currently sponsoring a bill that will allow NJ homeowners to do just that. To counteract the effect such a bill would have on the state budget, Lesniak proposes to close corporate tax loopholes that have already been closed in many states. Christie and Lesniak both believe such efforts should keep property values stable. Lesniak is hoping to get the bill signed by Chris Christie before Governor-elect Phil Murphy gets into office.
With the new federal tax law looming and many New Jersey residents expecting to pay more, one option homeowners have to possibly save money before the new tax law takes effect next year is to prepay their property taxes. (Note that you can only prepay taxes that are already assessed.) Some municipalities have made arrangements to allow for prepaying multiple quarters of property taxes. South Orange, for example, has asked their software company to allow a prepay feature to be available to anyone who wants the option of paying more than just first quarter. Please contact your local tax office about pre-payment options. Also, if your mortgage company escrows funds and pays taxes for you directly then don’t forget to coordinate the prepayment with them. They may re-calculate your escrow and issue you a refund for overpaying. We also advise checking with your own tax professional before running off to prepay your 2018 property taxes. According to Roger Skula, CPA of Union, NJ if you are subject to the AMT this can negate the value of prepaying the property taxes.
Senate President Stephen Sweeney said the state Division of Local Government Services should tell municipalities how to quickly issue property tax bills for 2018 in its entirety so residents can pay by December 31 and claim the deduction on their 2017 federal tax returns. There is currently no limit to the amount of property taxes that can be claimed, but that will change to a maximum of $10,000 at the start of 2018. Sweeney also said some towns are making plans to keep their tax offices open on Saturday, December 30 for the convenience of their residents. Prepaying your property taxes could end up saving you thousands of dollars.
Nothing is set in stone yet and nobody knows exactly how this will impact the market. Will more sellers be propelled to flee high tax states increasing available inventory? Will buyers sit on the fence? Will the number of transactions fall off as one Short Hills resident and real estate investment banker told me he predicts? Or will the impacts be short lived? Congress could make corrective changes in the beginning of 2018, the IRS may come out with new rulings clarifying aspects of the bill. Gov. Andrew Cuomo hinted on CNN this morning that states like New York may even be suing the Federal government claiming the tax changes unfairly tax its residents twice. We will update you as more information about this bill becomes available.
There are several other steps you could consider before the new tax year begins. One step would be to increase charitable contributions. Many taxpayers may not be able to itemize any longer once the new tax law takes effect, and therefore, will not be able to claim future charitable donations. If you make the donations now that you were planning to make early in 2018, you can claim them on your 2017 tax return.
You could also purchase any business related equipment before the unreimbursed business expense deduction goes away at the end of the year.
If you can delay some of your income, you should consider doing that. Push the income into the new year to take advantage of lower tax rates.
And if you have any medical expenses that can be deducted, you may want to pay for them this year rather than next year when you may not be able to itemize.
Remember to consult your financial advisor and tax professional to see what options will work best for your situation.
The Allison Ziefert Real Estate Group is a top producing real estate group based at Keller Williams Mid-Town Direct in Maplewood, NJ. Allison Ziefert, a local market expert, specializes in Maplewood, South Orange, Millburn/Short Hills and West Orange, NJ real estate and homes, and the surrounding towns. Allison’s success as a Maplewood/South Orange realtor is driven by earning great testimonials from sellers and buyers of homes in her marketplace. You can read her testimonials at www.azhomesnj.com/testimonials.