01 Jul What happens with ANCHOR on my tax return?

Q. Should I decrease my N.J. property tax deduction (line 40a) by my ANCHOR benefit?
— Homeowner

A. This is a question that’s come up a lot.

The Affordable New Jersey Communities for Homeowners and Renters, known as ANCHOR, pays up to $1,750 to eligible homeowners and up to $700 for renters.

This payment, and the Senior Freeze, which helps eligible seniors with rising property tax bills, are not taxable for New Jersey income tax purposes and should not be reported on the New Jersey income tax return, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

He said information on the federal tax treatment of these payments, called “recoveries” by the IRS, can be found in IRS Publication 525.

Papetti said in general, the IRS follows the “Tax Benefit Rule” that states 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.

The most common recoveries are refunds, rebates, and reimbursement of itemized deduction items such as property taxes, he said.

“Note if a taxpayer took the standard deduction rather than itemized deduction, the recovery does not impact the federal tax return,” he said. “According to the New Jersey Society of Certified Public Accountants, ANCHOR payments should reduce the real estate tax expense taken as an itemized deduction and not reported as income.”

But again, he said, ANCHOR is not taxable by New Jersey and should not be reported on your New Jersey tax return, Papetti said.

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This story was originally published in July 2024.

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