New Jersey legislators have a new interest in charitable donations. As the old saying goes, taxpayers better hold onto their wallets.
The state Senate passed a bill at the end of last month to allow towns, counties and school districts to set up charitable funds to accept property tax “donations.” The goal is for a well-off minority of state taxpayers to be able to deduct more than $10,000 per year in property taxes on their federal returns. That’s the cap on local and state tax deductions under federal tax reform enacted in December.
Although New Jersey’s average property tax last year was a national-high $8,690, most taxpayers are unaffected by the cap on federal deductions because it only applies to those who can itemize deductions to get a bigger break than by using the standard deduction. Tax reform also increased the standard deduction, reducing taxes for those who use that.
High-income people with very large houses — for example, former Gov. Chris Christie, whose property tax is $41,000 per year — are now limited to writing off $10,000 of the taxes they pay in New Jersey. So state legislators are setting up a scheme to count their taxes as a charitable donation to government so they can deduct them on their federal tax return.
The Senate bill, interestingly, would only credit 90 percent of the donation to government toward the property tax bill. Even among the wealthy, there may not be many who want to give government extra money.
The supposed purpose of requiring more donation than credit off property taxes is to try to get IRS approval for the scheme. That seems to make the plan look even more like money laundering instead of true support for a charity. As many are seeing firsthand in this tax season, if you have received something of value from a charity in return for your gift, that value isn’t deductible. Surely a dollar-for-dollar property tax credit would be considered something of value by the IRS.
If this scheme ever becomes law, affluent taxpayers better be careful, or they might wind up in a tax mess and paying government more than necessary.
There is a good piece of legislation, though, regarding charitable contributions that also might find support as a response to federal tax reform.
State Senate Minority Leader Tom Kean Jr., R-Union, Morris, Somerset, recently reintroduced a bill to let state residents deduct contributions to New Jersey-based charities for state income tax purposes.
Kean has pursued this sort of incentive to charities for a decade. A broader version allowing deductions for charities wherever based, which came close to being enacted in 2016, was cosponsored by state Sen. Richard Cody, D-Essex, Morris, and had strong bipartisan backing, including from Senate President Stephen Sweeney and Sen. Jeff Van Drew, D- Cape May, Atlantic, Cumberland.
The state association representing many charities, the Center for Non-Profits, worries that with the bigger standard deduction taxpayers get under federal tax reform, fewer will itemize deductions and may reduce their charitable giving as a result.
The center says nonprofits already are chronically underfunded for the increasing community needs they provide. “We are very, very concerned that with the change in the tax code, there will be a significant decrease in charitable giving in New Jersey,” center President Linda Czipo told NJ Spotlight.
Helping New Jersey charities maintain their level of support would be good, as would giving taxpayers a break for doing so.
But the latter would also mean state government would get less revenue. With the administration and Legislature already proposing tax increases to keep up with their spending plans, the fate of Kean’s bill is likely to depend on the legislative fiscal analysis of it that has yet to be done.