NJ joining lawsuit to remove caps on state, local deductions under Trump tax plan

David Madden
July 17, 2019 - 1:58 pm
Governor Phil Murphy and Attorney General Gurbir Grewal announce a federal lawsuit to overturn IRS rule invalidating New JerseyÕs efforts to restore property tax deductibility on July 17, 2019, in South Orange.

Edwin J. Torres/N.J. Governor's Office.

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SOUTH ORANGE, N.J. (KYW Newsradio) — New Jersey is joining two neighboring states to the north in filing a federal lawsuit that, if successful, would remove caps on state and local tax deductions imposed by the IRS as part of the Trump tax plan.

The suit, which includes New York and Connecticut, seeks to force the Treasury Department to follow rules and policies that have been in place since the federal income tax was established over a century ago.

New Jersey Gov. Phil Murphy used a press conference in South Orange, Essex County, to make the announcement. He noted that 33 other states were allowing charitable funds to be set up to help local causes, but changing the rules now is unfair.

"For the sake of pure politics and the further weaponization of the tax code, the IRS has decided to change its policy to countermand nearly 35 years of established legal precedent," the governor said.

The $10,000 SALT cap made official last month affects more than half the homeowners in New Jersey, where the average real estate tax bill stands at $18,000 a year. And most of those taking the hit are middle class homeowners.  

Attorney General Gurbir Grewal, who filed the suit in the Southern District of New York, added, "These tax credit programs were just fine when 33 states had them. But when New Jersey, New York and Connecticut followed suit, the IRS adopted brand new rules to shut them down."

It should be noted that when New Jersey adopted the charitable donation loophole, not one municipality took advantage of it. Supporters suggest that was because a fight was almost certain and they wanted to see how it ends up.