Gov. Murphy signs workaround of federal tax overhaul into law

Posted: Updated:

Gov. Phil Murphy signed into law a bill to soften the effect of the federal tax overhaul's cap on state and local tax deductions.

Murphy signed the bill Friday in East Rutherford, alongside state and local officials, U.S. Sen. Bob Menendez and Rep. Bill Pascrell. But it was not clear if the Internal Revenue Service would allow it.

The 2017 federal tax law caps state and local tax deductions at $10,000. It led officials in high-tax states like New Jersey scrambling to blunt the potential impact.

New Jersey officials say that in towns like East Rutherford, homeowners could lose an average of $3,000 a year under the new law.

“Today’s the day that New Jersey fights back and today we fight back against a tax policy that treats New Jersey like America’s piggy bank,” Menendez says.

Under the new legislation, towns and school districts collecting property taxes may set up charitable funds. Taxpayers would then pay property taxes to the funds and get a deductible tax credit in return. The new law does not cap charitable deductions.

For homeowners who are worried that they will be penalized if they deduct from their property taxes, Murphy says that it is his strongly held belief that it would not happen. But there is likely to be a federal government challenge before the law takes effect. Treasury Secretary Steve Mnuchin has called this effort ridiculous.

“We’ve got a treasury secretary who’s been barking out some talking points even though it’s not his decision,” the governor says.

Murphy says that he is willing to go to court to fight for the law.

“It is our deeply held opinion that if the IRS were to reconsider or review our situation they would have to reconsider or review the 33 state precedents that are out there,” he says.

The law goes into effect in 60 days.

The Associated Press wire services contributed to this report.

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