Follow Us:

Opinion

  • Article
  • Comments

Opinion: National Tax Reform — Questions for New Jersey Residents

Asking the right questions can help New Jerseyans get a picture of how GOP-backed tax reform will impact them

andrew sidamon-eristoff
Andrew Sidamon-Eristoff

Over the next weeks and months, we can expect an avalanche of advocacy and analysis surrounding the House and Senate Republicans’ tax reform proposals. Unfortunately, most of the noise will amount to little more than political spin, while only a small portion will yield genuine insight. In part, this is because assessing the impact of potential tax policy changes is highly dependent on specific conditions that defy easy generalization. For individuals, these conditions include everything from the amount and type of income you receive, to where you live and work, to your family and dependent status.

Without pretending to cover all the variables in this space, here are a few questions that may be of particular relevance to New Jersey resident taxpayers in assessing the impact of the emerging GOP plans.

Are you a homeowner? Both the House and the Senate plans contain important changes that affect homeowners. If you are a homeowner, you are in good company. According to the U.S. Census, the owner-occupied housing rate in New Jersey is 64.5 percent.

Is your house worth $500,000 or more and are you thinking of selling? The House plan would lower the limit for new deductible home-mortgage loans from $1 million to $500,000. Although existing mortgages are grandfathered, prospective home sellers might want to consider whether a new $500,000 limit could act as a psychological barrier to setting a higher asking price. How many New Jersey homeowners might be impacted? A lot. A conservative estimate using somewhat dated census survey data suggests that at least a quarter million New Jersey homes are worth more than $500,000.

Do you have a vacation home down the Shore or somewhere else in New Jersey? If so, you’ll want to note that both the House and the Senate plans eliminate the current ability to deduct interest on up to $100,000 of debt related to second homes. Granted, $100,000 doesn’t buy much down the Shore, but eliminating the deduction might make it slightly more difficult to sell down the road.

Do you pay $10,000 a year or more in property taxes? If so, you need to know that the House plan limits the deduction for property taxes at $10,000. Common sense — New Jersey’s average residential property tax bill in 2016 was $8,549 — and a rough calculation using IRS statistics suggests that about a half million New Jersey homeowners might see some paring of their property tax deduction under this limitation. Ouch. But wait, there’s more…

Have you been taking an itemized deduction for state and local taxes (including property taxes)? In a major departure from the House plan, the Senate plan dispenses with the niceties and simply repeals the deduction for state and local taxes (SALT) altogether. New Jerseyans are major beneficiaries of this deduction, so this change could really hurt. According to the IRS statistics, over 1.8 million New Jersey returns claimed over $32 billion in SALT deductions in 2015, an average of $17,850 per return. Not all these deductions were taken by the super-rich: a third reported adjusted gross income between $100,000 and $200,000.

Have you been subject to the Alternative Minimum Tax (AMT)? The GOP plan would repeal the AMT, a separate tax calculation that generally hits higher-income households by limiting certain deductions. Well over a quarter million New Jersey taxpayers are subject to the AMT, mostly at the higher end. (According to the Tax Foundation, 81.6 percent of New Jersey households with incomes between $200,000 and $500,000 pay the AMT.) Since New Jerseyans are among the most likely to pay the AMT, it stands to reason that New Jerseyans will benefit disproportionately from AMT repeal. But not so fast: the GOP plans’ curbs on deducting state and local taxes will offset and perhaps even overwhelm the benefit many taxpayers might have expected from AMT repeal.

Have you ever taken a disaster or casualty loss deduction? Both the House and the Senate plans would eliminate the current deduction for casualty losses exceeding 10 percent of your adjusted gross income. With Irene and Sandy leading the way, New Jersey has obviously experienced its fair share of severe weather that gave rise to extensive property damage. Even though the 10 percent of AGI threshold is a high hurdle, I’d bet that there are lots of New Jersey families that have benefitted from the deduction.

Don’t panic. None of this is written in stone. It’s early days yet, so it’s likely that lobbying pressures and inevitable horse trading will result in significant changes before the House and Senate tax writers agree on a final package, if indeed they can agree. Stay tuned, New Jersey!

A former New Jersey state treasurer, Andrew Sidamon-Eristoff has held cabinet-level appointive office in New York City and New York state as well as New Jersey. He is also a former member of the New York City Council.

Read more in Opinion
Sponsors
Corporate Supporters
Most Popular Stories
«
»