New Jersey Attorney General Gurbir Grewal said he will challenge any efforts by the Trump administration to clamp down on the state's plans to circumvent the new federal tax law and preserve a big property tax break for residents.
In a letter to the U.S. Internal Revenue Service, Grewal said he’d consider a legal challenge against the federal agency unless they back off.
Grewal’s letter came a day after the IRS and federal Treasury Department announced they would be closing a loophole New Jersey was utilizing to bypass the $10,000 cap on state and local property (SALT) tax deductions.
“The IRS should not play politics. Instead, it must confirm its long-standing interpretation of federal law,” Grewal said. “Should the IRS and Treasury Department continue down this path, New Jersey will have no choice but to challenge the new rule in court.”
Gov. Phil Murphy, a Democrat, signed a bill earlier this month that would provide tax credits for charitable contributions to local governments.
Murphy said Wednesday he’s confident the SALT workaround “can and should be embraced by the IRS” and added “anything less is a flat-out admittance that politics rather than policy guides the decisions of the Trump administration.”
But the IRS warned taxpayers should not follow New Jersey’s law.
“Despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes,” the IRS warned.
The notice added IRS regulations would soon be unveiled to make clear “the relationship between the federal charitable deduction and the new statutory limitation on the deduction for state and local tax payments.”
The federal $10,000 SALT cap deduction was part of a tax policy overhaul under the Tax Cuts and Jobs Act signed into law by President Trump in December.