On May 4, 2018, New Jersey Governor Phil Murphy signed into law Senate Bill 1893 to allow New Jersey municipalities, school districts and counties (each, a “local unit”) to create, at their option, charitable funds. The law further allows local property owners to make donations to the funds and receive a credit of up to 90% of the value of their donations that can be used to offset their property tax obligations. Owners of property within the local unit will be able to choose to apply their donations to specific properties in order to receive property tax credits.
Local units are limited in allowing credits that exceed 85% of their prior year’s budget, unless the State’s Director of the Division of Local Government Services authorizes a higher percentage. In addition, the law allows the municipal tax collector to collect a fee of up to 2% of the aggregate credits issued for its costs of collection. The law takes effect July 3, 2018.
The new law provides local units the choice to create charitable funds, but does not require them to do so. Further, taxpayers who make such donations, claim the property tax credits and then claim a charitable deduction on their federal income tax returns still face the uncertainty of whether the Internal Revenue Service (IRS) will respect the federal income tax treatment as a charitable deduction. Treasury Secretary Steven Mnuchin has suggested that the IRS may disallow the deduction of donations to the charitable funds sponsored by state and local governmental agencies to the extent that the donations circumvent the Tax Cuts and Jobs Act’s $10,000 limitation on the deduction of state and local taxes. Accordingly, it is possible that the law will ultimately not fulfill its purpose of alleviating the limitation’s tax burden on New Jersey taxpayers.
For more information regarding this new law and how it may impact you, please contact your Caroprese tax professional.