Congressman Leonard Lance (NJ-07) and Congressman Josh Gottheimer (NJ-05) today unveiled their bipartisan legislation to allow taxpayers to deduct their entire 2018 property tax prepayments from their 2017 income tax returns. New Jersey representatives Chris Smith, Rodney Frelinghuysen and Frank LoBiondo are original cosponsors.

“New Jersey residents rightfully believe that the Tax Cuts and Jobs Act signed into law last month would allow 2018 property tax prepayments to be fully deductible on their 2017 tax returns. Many residents prepaid their 2018 liabilities before the end of 2017. It took the IRS five days after the bill passed and four days before the end of 2017 to issue guidance that would limit the deductibility based on the date of the property tax assessment. That ruling isn’t fair and our legislation instructs the IRS to allow full deductibility to protect New Jersey taxpayers,” said Lance, the lead sponsor of the bill.

“The repeal of the State and Local Tax Deduction was a money-grab from Moocher States, raising our taxes and attacking a fundamental state right recognized since 1913. This bill cuts taxes by helping to restore part of the benefits of the critical deduction to the people of our state. Many people, in good faith and based on existing law, lined up to prepay their 2018 property taxes and save their families money. But the IRS rushed a baseless decision to limit taxpayers’ ability to deduct these payments on their 2017 returns. This bill would reflect the will of Congress that these prepayments are and should remain fully deductible.” said Rep. Gottheimer, the co-lead sponsor of the bill.

Last week, Lance wrote to Acting IRS Commissioner David J. Kautter and requested the Agency reconsider IRS Advisory IR-2017-210 issued on December 27, 2017 regarding the tax deductibility of prepaid state and local property taxes.

That ruling stated the IRS would only allow the full deductibility of 2018 property taxes paid in 2017 only if the property taxes had been assessed in 2017. Lance suggested the deduction should be expanded to all 2018 property taxes regardless of the date of assessment.

President Trump signed the Tax Cuts and Jobs Act into law on December 22, 2017. The law clearly prohibits individuals from deducting the prepayment of future state and local income taxes, but does not mention whether or not the prepayment of state and local property taxes would be deductible.

This led many individuals to prepay their entire 2018 property tax liability prior to the issuance of the IRS Advisory, believing that it would be deductible on their 2017 tax returns.

Governor Christie issued an executive order the day before the IRS Advisory was released, mandating that all municipalities in the State accept the prepayment of property taxes for the entirety of 2018. This action caused many more New Jersey residents to prepay their 2018 property tax bill than would otherwise be the case.