New tax reform laws could spur New Jerseyans – retirees in particular – to sell their homes and move into rental spaces, according to several local accountants.
That’s because a sweeping overhaul of the tax code currently being ironed out by House and Senate Republicans in the U.S. Congress would cap the deduction for property taxes at $10,000 and preserve the mortgage interest deduction only for existing mortgages and new purchases with mortgages of $500,000 or less.
That would be bad news for state residents, who already pay some of the highest property taxes in the country, and could exacerbate the population flight out of New Jersey. It could also prompt residents – particularly retired people who no longer have children in the state’s school system – to sell their homes in favor of rental properties.
Stuart Berger, a partner at Clifton-based Sax LLP and head of the firm’s real estate practice, said capping the deduction on property taxes may have a minimal effect on residents in other parts of the country, but will negatively impact New Jerseyans because of high property taxes and home ownership costs.
“I am concerned that if that real estate tax cap goes higher, it is going to further accelerate the moves out of New Jersey,” Berger told NJBIZ. “It might push some of the seniors who have lived in a community for years to sell their homes and move into a new rental property from that standpoint.”
Berger also said the new cap could discourage young people from seeking to purchase their first homes in the state.
“The flight to home ownership could be reduced,” he said. “In the past the young people who were stretching themselves out to buy a home always considered that they got a tax write off on mortgage interest. This could be a factor in whether they will consider home ownership.”
Jim Lawrence, a partner and CPA at Traphagen Financial Group in Oradell, agreed that residents should pay state and local taxes before the end of the year in order to get the current deductions, but said his firm is recommending to clients that they pay their estimated state taxes for the first quarter of 2018.
By doing so, residents would get a voucher for the first quarter before the new tax law kicks in, thereby allowing them to get a deduction on those taxes next year under 2017 tax laws.
“So the 2018 voucher is a new concept,” said Lawrence. “So the worst-case scenario is that no legislation goes through, but you’d still getting that deduction for first quarter of 2018. I don’t think there’s anything lost by doing it. We’re talking about $2,000 to $4,000 [in tax returns] that they might not ever see again,” he said.