09 Jan How do I handle property tax relief on my tax returns?

Q. What happens on the federal and state income tax return with ANCHOR and Senior Freeze? Is it considered income?
— Taxpayer

A. The payments are not taxable for New Jersey income tax purposes and should not be reported on the New Jersey income tax return, the state said.

The federal return is different.

The IRS calls these payments “recoveries,” as discussed in IRS Publication 525.

This is where the so-called “Tax Benefit Rule” comes in. It says you must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit reduced your tax in the earlier year.

ANCHOR payments should reduce the real estate tax expense taken as an itemized deduction and not reported as income, according to the New Jersey Society of Certified Public Accountants,

So if you take the standard deduction, recoveries won’t affect your federal tax return.

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This story was originally published in January 2026. 

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