New Jersey sets up rules to work around SALT deductions cap

New Jersey has set the rules for how residents can make an end run around the $10,000 federal limit on state and local tax deductions — even though the Internal Revenue Service is trying to shut it down.

Towns, counties and school districts can establish the funds to collect taxes for education, emergency operations, libraries, trash pick-up, road repair and other local services. In turn, property owners may receive a credit of up to 90% of their contribution, deductible as a charitable expense.

The workaround, though, may be short-lived, because the IRS has proposed rules limiting such a credit to 15%. New Jersey, New York, Connecticut and Maryland sued President Donald J. Trump’s administration in July, claiming the state and local tax deduction, or SALT, unfairly punished Democratic strongholds that have higher housing prices and property taxes.

“If and when the IRS finalizes its rules, we’ll see them in court,” New Jersey Attorney General Gurbir Grewal said in a statement.