NJ Homeowners Who Prepaid Their 2018 Property Taxes in 2017 Cannot Deduct the Amount on 2017 NJ Tax Returns
January 11, 2018
Updated January 12, 2018
ROSELAND, N.J. — New Jersey taxpayers who opted to prepay some of their 2018 property taxes in 2017 will only receive that deduction on their 2018 state tax return, according to the New Jersey Division of Taxation, though they will be able to receive the deduction on their federal return for tax year 2017.
“Residents can claim a deduction or credit on their New Jersey income tax returns for the property taxes they have paid. However, they can take the deduction or credit only in the year in which the property taxes were due. Taxpayers cannot take deductions or credits for 2018 property tax prepayments on their 2017 New Jersey income tax returns (NJ-1040). They must wait until they file their 2018 returns,” said the Division.
The Tax Cuts and Jobs Act signed into law in December 2017 put a $10,000 cap on state and local tax deductions starting with 2018 federal tax returns, prompting many New Jersey homeowners to prepay a portion of their 2018 property taxes. But the tax advantages of prepayment don’t apply to New Jersey tax returns.
“Homeowners may be in for shock when they discover that their end-of-year planning to increase their 2017 federal property tax deduction will have no impact on their 2017 New Jersey income tax return,” said Ralph Albert Thomas, CEO and executive director, New Jersey Society of CPAs (NJCPA). “What may further frustrate Garden State residents is that since 1996, there has been a $10,000 cap on property tax deductions on New Jersey tax returns.”
The following examples clarify when New Jersey residents can take property tax deductions by year:
Homeowner A’s property taxes are $8,000 per year. He paid all of his 2017 property taxes ($8,000) during 2017 and also prepaid the first two quarters of his assessed 2018 property taxes ($4,000) on December 27, 2017.
- On his 2017 federal tax return, he can claim a property tax deduction of $12,000 – the total of all property tax payments assessed and paid in 2017.
- On his 2017 New Jersey tax return, he can only claim a property tax deduction of $8,000 – the total of all property taxes assessed in 2017. The $4,000 prepayment of his 2018 property taxes will be deductible on his 2018 New Jersey tax return, even though the payment was made in 2017.
Homeowner B’s property taxes are $12,000 per year. She paid all of her 2017 property taxes ($12,000) during 2017 and also prepaid the first two quarters of her assessed 2018 property taxes ($6,000) on December 27, 2017.
- On her 2017 federal tax return, she can claim a property tax deduction of $18,000 – the total of all property tax payments assessed and paid in 2017.
- On her 2017 New Jersey tax return, she can only claim a property tax deduction of $10,000 – the total of all property taxes assessed in 2017, with a cap of $10,000 per year. The $6,000 prepayment of her 2018 property taxes will be deductible on her 2018 New Jersey tax return, even though the payment was made in 2017.
NJCPA members recommend that taxpayers who have opted to prepay their taxes and take the deductions should also retain their canceled checks as proof of payment for 2017 and 2018. They caution that extra scrutiny could be placed on those returns due to the prepayment allowances.
The NJCPA encourages residents to consider their individual financial situation and obtain guidance from a CPA.
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The New Jersey Society of Certified Public Accountants, with more than 15,000 members, represents the interests of the accounting profession and advances the financial well-being of the people of New Jersey. The NJCPA plays a leadership role in supporting the profession by providing members with educational resources, access to shared knowledge and a continuing effort to create and expand professional opportunities. Visit njcpa.org.