01 Mar How 2017 property tax deductions work

Q. Suppose my 2018 property tax bill is $10,000 but I prepaid $5,000 of that in 2017. What can I deduct, and when?
— Homeowner

A. You’re not alone in your confusion because the NJ-1040 from instructions are not clear.

Your question asks if you have to actually pay your 2018 property taxes in 2018 in order to get the New Jersey property tax deduction, which is limited to $10,000 on your New Jersey income tax return.

“The form instructions are worded in two different ways, which would lead you to two different conclusions,” said Laurie Wolfe, a certified financial planner and certified public accountant with Lassus Wherley in New Providence. ”

On a worksheet in the instructions, it directs you to insert the amount of property taxes paid “for the period” and on another page it says to enter property taxes paid “during 2017.”

Wolfe said she went onto the state’s website to see if there was any clarification and lo and behold, when you click on the Individual section, there is a pop-up screen that says the following:

“Residents can claim deductions/credits on their New Jersey Income Tax returns for the property taxes they have paid. However, they can take these deductions/credits only in the year in which the property taxes are due. So taxpayers can’t take deductions or credits for 2018 property tax pre-payments on their 2017 New Jersey Income Tax returns (NJ-1040). They must wait until they file their 2018 returns.”

Wolfe found some clarification there.

“The way I read this is that New Jersey is saying that you should claim the amount of taxes that are due in the current year, regardless of when you actually pay them,” she said. “Of course, you must actually pay them at some point to get a deduction for them.”

She notes that this is for New Jersey. The federal returns of cash basis taxpayers would only allow deductions that are actually paid in the current year, Wolfe said.

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This post was first published in March 2018.