NJ joins appeal challenging federal tax deduction SALT cap

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New Jersey Attorney General Gurbir Grewal has joined three other states in appealing the court decision that allowed the Trump Administration to impose a $10,000 cap on the federal tax deductions for state and local taxes, commonly referred to as SALT.

New York, Connecticut, and Maryland, the same other states that initially filed a lawsuit in 2018, are also appealing the decision. The lawsuit seeks to prevent the U.S. government from enforcing the SALT cap, and calls for the cap to be declared invalid. The appeal was filed in the U.S. Court of Appeals for the Second Circuit.

“Today we are continuing to fight for New Jersey taxpayers in court,” said Grewal in a written statement. “The federal government acted unlawfully when it imposed arbitrary and unprecedented limits on the tax deduction for state and local taxes, and it harmed residents all across our state when it did so.”

New Jersey Governor Phil Murphy said the Trump Administration is using the IRS as a political weapon. “My Administration remains committed to finding solutions for homeowners wrongly targeted by the federal tax law that limited SALT deductions and exploring all possible avenues to restore full deductibility for our residents,” Murphy said in a written statement.

In 2017, the Federal Government amended the federal tax code. Previously, taxpayers who itemized their deductions could deduct from their federal tax liability all money paid for state and local income, property, and sales taxes. Under the new code, the same taxpayers are only permitted to claim up to $10,000 for those taxes.

State officials said that no previous federal tax law has capped the federal income tax deduction for SALT at such a low amount, and that the U.S. government has always provided a deduction for all or a significant portion of state and local taxes.

The original multi-state lawsuit, filed in the Southern District of New York in July 2018, argues that the SALT cap will depress home prices and reduce overall spending, harming New Jersey’s economy. The multistate coalition also argues that the SALT cap will interfere with states’ autonomy to make their own tax decisions, will disproportionately harm taxpayers, and was unlawfully enacted to target New Jersey and similarly situated states.

Grewal has also filed a lawsuit against the Internal Revenue Service, urging the federal court to find invalid an IRS rule that prevents New Jersey residents from obtaining a full federal charitable deduction when they contribute to local governments and other qualifying institutions and receive tax credits in return. That separate case is ongoing before the Southern District of New York. New York and Connecticut joined that lawsuit as well.

Krystal Knapp

Krystal Knapp is the founding editor of Planet Princeton. She can be reached via email at editor AT planetprinceton.com. Send all letters to the editor and press releases to that email address.

5 Comments

  1. @Derek It’s the middle to upper middle class home owners in high-housing cost states that got hit. According to Rutgers, middle class in NJ is $60K-$170K for a family of four, depending on where in NJ you live.

  2. My daughter is making somewhere In the midst of 40k and she got a tax cut.
    If she is not in the middle class, then I dont know who is.
    You are the first of many people I know that is paying more federal tax now then in 2017.
    Perhaps we should have more efficient local government.

  3. @Derek Congratulations! Your income is high enough that you’ve saved more on the tax rate cut than the SALT cap cost you. Not everyone is as lucky. I’m not, for sure. Nor is much of the middle class in New Jersey is in the same good place as you.

  4. Let’s take a poll here. How many of us got tax increase due to tax cuts?
    I plugged my 2018 numbers in a 2017 tax software to compare apples to apples.
    Without tax cuts but with no SALT cap I would be paying about $3000 MORE in federal taxes
    My daughter who graduated from college several years ago, I plugged her numbers and she is now paying about $1500 less! Why they are telling us lies that our taxes are now higher amid tax cuts. It is simply not true.

  5. What is the purpose of this?

    SALT cap along with the tax cut in 2017 worked out very well for majority of the middle class in USA (and in New Jersey).
    If you pay more taxes now, you are probably ‘rich’ and you should be taxed more anyway.
    If your property taxes are high, well there is a way to fix that.
    Next time elections are coming….choose wisely

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