As expected, IRS throws cold water on Phil Murphy’s SALT workaround scheme

WASHINGTON, D.C. — The IRS isn’t messing around with blue states trying to circumvent the new tax law. On Thursday, the federal government’s tax enforcement arm issued a long-expected missive explaining that the workarounds adopted by states like New Jersey to get around the state and local tax deduction cap won’t fly.

Here’s the key language directly from

“Under the proposed regulations, a taxpayer who makes payments or transfers property to an entity eligible to receive tax deductible contributions must reduce their charitable deduction by the amount of any state or local tax credit the taxpayer receives or expects to receive.

For example, if a state grants a 70 percent state tax credit and the taxpayer pays $1,000 to an eligible entity, the taxpayer receives a $700 state tax credit. The taxpayer must reduce the $1,000 contribution by the $700 state tax credit, leaving an allowable contribution deduction of $300 on the taxpayer’s federal income tax return. The proposed regulations also apply to payments made by trusts or decedents’ estates in determining the amount of their contribution deduction.

The proposed regulations provide exceptions for dollar-for-dollar state tax deductions and for tax credits of no more than 15 percent of the payment amount or of the fair market value of the property transferred. A taxpayer who makes a $1,000 contribution to an eligible entity is not required to reduce the $1,000 deduction on the taxpayer’s federal income tax return if the state or local tax credit received or expected to be received is no more than $150.”

Phil Murphy fumed.

“New Jersey has led the charge against President Trump’s unfair and arbitrary cap on the SALT deduction, which was nothing more than a tax hike on working and middle-class families,” said the Democrat Governor. “We are prepared to fight back tooth and nail against any attempts by the IRS or the Trump administration to block localities from setting up charitable funds to help New Jersey taxpayers preserve their deductibility. We are closely examining all legal avenues against the federal government to protect New Jersey taxpayers from being unfairly targeted by the President.”

Murphy ignored the fact that the GOP tax reform cut taxes for 80% of New Jersey residents while another 10% will see no change.

He also has yet to unveil a plan to actually lower property taxes, a move which would help that final 10% by allowing more of them to tax advantage of the $10,000 cap.