Trump tax plan kills key deductions, wallops NJ homeowners

New Jersey taxpayers would lose key deductions under a proposal unveiled this week by President Donald Trump: property taxes and state income taxes, experts said.

The tax reform plan would hit New Jerseyans hard, they said, forcing them to give up rare benefits they received for living in a high-tax state.

"That will really sting New Jersey residents," said Anthony Nitti, a tax partner with WithumSmith+Brown.

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Trump's tax reform plan is designed to improve economic growth through a simpler system that includes fewer tax brackets and lower corporate taxes.

It's a bid to overhaul the U.S. tax system for the first time since 1986 – a task that seems every bit as complicated as Congress' failed attempt to repeal the Affordable Care Act, commonly known as Obamacare.

New Jersey's property taxes, which pay for teachers, local police and other services, are the nation's highest and have long been a source of contention. The average police salary tops $100,000 at more than half of the police departments at the Jersey Shore. And the state's teachers had the nation's sixth highest salary at $69,330 a year in 2016.

The proposal already has run into opposition, particularly in New Jersey. The state's real estate lobby warned that eliminating the property tax deduction would cause home values to plummet as much as 10 percent.

"Right now there's kind of a basket to what goes into the affordability (of homeownership), and unfortunately in New Jersey we have the dubious honor of (having) the highest real estate tax in the country," said Bob Oppenheimer, president of the New Jersey Association of Realtors.

"That would certainly put ice water on homeownership versus renting, and actually give … New Jersey a clear cut edge to renting."

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The Trump tax plan would be simpler. It would reduce the number of individual income tax brackets from seven (10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent) to three (12 percent, 25 percent and 35 percent).

It would eliminate all of the deductions except for mortgage interest and charitable donations. It would eliminate personal exemptions. And it would double the standard deduction.

Wealthy taxpayers would get a break. It would eliminate the estate tax, which applies to individuals with estates of at least $5.45 million and married couples with estates of $10.9 million. And it would eliminate the alternative minimum tax, which was designed to prevent wealthy taxpayers from paying little or no income tax, but is burdensome to calculate.

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Conservative groups praised the outline.

"If the plan is enacted, Americans will get to keep more of their own money, filing taxes will be far simpler, and small businesses will boost wages and create jobs," said Tom Schatz, president of Citizens Against Government Waste, a Washington, D.C., lobbying group.

How it shakes out, though, isn't clear. Trump has yet to provide details on what incomes would fall into what tax brackets.

"They want to lower taxes for the middle class, but nobody has said what the middle class is," said Dawn Greenberg, tax principal at Cowan Gunteski & Co. in Toms River.

With the elimination of all but two itemized deductions, though, some New Jersey taxpayers could have to carry a heavier tax burden for the nation.

How? Three ways:

1. Property taxes

New Jerseyans with a median-priced home of $314,900 in 2015 paid $7,410 in property taxes, according to a study by WalletHub.com, by far the nation's highest.

The next highest: Connecticut, where a resident with a median-priced home paid $5,327, the website said.

"We have such large real estate tax, losing that deduction on the federal level could be a problem," Greenberg said.

2. State income tax

New Jersey has a relatively high state income tax. Its top rate of 8.97 percent on income of more than $500,000 is the nation's fifth highest rate, according to a study by TurboTax.

And individual's income of more than $75,000 is taxed at a rate of 6.37 percent, according to the Tax Foundation, a Washington, D.C., research group.

By comparison, seven states have no personal income tax and wouldn't be affected by the new plan.

"It hurts us, it hurts New York, it hurts California," said I. David Eliran, a Freehold Township certified public accountant. "These are the states with the highest state income taxes."

3. Other deductions

Taxpayers, for example, would lose the deduction they now have for medical expenses of more than 10 percent of their adjusted gross income.

Also on the chopping block: Financial adviser fees, which also can sometimes be deducted, said Nitti of WithumSmith+Brown.

"I would expect it to be the middle and upper middle class that maybe gets harmed by confluence by change in the tax rates combined with the loss of some of these deductions,” Nitti said.

Michael L. Diamond; 732-643-4038; mdiamond@gannettnj.com