Interactive Map: Wealthy Suburbs Biggest Winners in NJ Property-Tax Deduction

Homeowners in best-off communities save far more than residents of low-income cities — and are likely to save even more if Legislature adopts governor’s proposal to raise the deduction

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The average New Jersey household saved $147 in income taxes in 2016 by deducting the property taxes they paid on their state income-tax forms, with homeowners in the wealthiest suburbs saving the most.

While residents in former Gov. Chris Christie’s hometown of Mendham Township realized more than $500 in income-tax savings on average in 2016, those living in a dozen communities, mostly low-income cities, saved $20 or less, according to data from the New Jersey Department of Community Affairs.

The owners of highly taxed homes would see their savings rise even higher in the future if the Legislature adopts Gov. Phil Murphy’s proposal to increase the amount of property taxes a person could deduct from income each year from the current $10,000 to $15,000. Given the lower home values and small savings reaped by residents in places like Paterson, Union City, and Atlantic City, it is unlikely these communities would notice much of a difference should that higher deduction become law.

In calling for the higher deduction, Murphy said it is an important step “to making New Jersey fairer.” He said the idea has support from both Democrats and Republicans, although four of the five sponsors of legislation are members of the opposition party. The bills, (S413/A3314), would eliminate any cap on the amount of property taxes that could be deducted. They were introduced quickly last December after Congress approved a federal tax-reform bill capping at $10,000 the deduction of state and local taxes for federal income-tax purposes; that change will hurt many in this state, whose $8,690 average tax bill is the highest in the nation.

Democratic leaders not saying much

This year, New Jersey tax filers are expected to save $450 million by deducting their property taxes or their equivalent on their income-tax returns, according to the Budget in Brief document. Murphy’s proposal to increase the maximum deduction by $5,000 would cost another $98 million, bringing the total in savings to $548 million.
Legislative hearings on the budget have begun and, so far, none of the Democratic leaders has championed the cause. While Republicans have said they would support increasing the deduction, they would prefer allowing for the deductibility of the full amount of property taxes.

Municipalities where taxpayers saved the most in 2016 because of the deduction tended to be those represented by Republicans, particularly in the wealthy suburbs of Hunterdon, Morris and Somerset counties.

The data shows that Mendham Township residents saved an estimated $510 on average, the most of all municipalities. This is a community where the average home was valued at about $907,000 last year and the typical homeowner paid $18,752 in property taxes. The 1,647 who took the deduction on their income taxes were able to deduct an average $8,614.

Other municipalities with high average savings were Chester Township, $469; Peapack and Gladstone, $460; and Livingston, $441.

Average savings in Paterson: $8

In 149 communities, residents saved less than $100, the data shows. The average savings estimated in Paterson — where the average property tax bill totaled $7,697 — was just $8. In Woodlynne, Atlantic City and Union City, it was just $11 per household.

State law allows both homeowners and renters to take a deduction but there are some conditions. For homeowners, a person must have at least $10,000 in income or $20,000 for a couple, or was age 65 or older or disabled, have owned and lived in a New Jersey home and paid property taxes on it. People who co-own homes with others are eligible to take a percentage of the taxes they paid. Renters are able to deduct 18 percent of the rent they paid.

The average impact of the property-tax deduction by town was included in this year’s annual release of property-tax information by the DCA as part of additional transparency required by a law enacted last year. That law requires the department to provide information on property-tax relief programs as part of its data release, after that information had been removed by Gov. Chris Christie. While the benefit of the deduction is one taxpayers realize on their income taxes, it is included because it is linked to property taxes.

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