IRS shuts down property tax loophole set to save tri-state big bucks

JERSEY CITY, N.J. -- A charity loophole that was meant to help homeowners has been struck down by the IRS.

This coming tax season, the loophole was set to save tri-state-area residents thousands of dollars and even keep rents more manageable.

Under the new Republican tax plan, taxpayers can write off up to only $10,000 from their local property tax contributions. Many local tax bills are well above that amount.

The one saving grace was supposed to be a law passed by states like New Jersey and New York that allowed property taxes to be paid as a sort of charitable donation to local governments. This would allow residents to write off their property taxes as “charitable donations.”

IRS said it would disallow this practice because the revenue that would be kept from the federal government was meant to offset other tax breaks.

New Jersey Gov. Phil Murphy was among those who consider the move political retribution against states that did not vote for President Donald Trump.

“The IRS is setting in dangerous precedent,” Murphy said. “They are saying: ‘No matter what states may do, and no matter the rules as they exist, and as they have been widely understood and accepted, we’ll just change them if they don’t like what you’re doing.’”

It’s not just property owners who have been affected by this back and forth. Renters said they are already seeing their landlords raise rents to help cover the lack of a property tax write off.

New Jersey, New York and Connecticut are suing the federal government over them not being allowed to write off local property taxes. Those governors have indicated that the charity loophole issue may be added to the existing litigation or challenged separately.