Tuesday, January 16, 2018
ATTENTION NEW JERSEY TAXPAYERS
OOPS! They did it again! The NJ chapter of the National Association of Tax Professionals held another truly “famous” State Tax Seminar. In the 25+ year history of this annual event I have missed only 2, due to snow. As I have always said, this seminar is a “must attend” for any tax professional who prepares NJ state individual or corporate income, payroll, inheritance, and/or sales tax returns.
I provide a review of this seminar for my fellow tax pros at THE TAX PROFESSIONAL. For this post I want to review some of the things discussed at the seminar that are of interest to NJ taxpayers.
Most of this seminar is devoted to updates and presentations on the various NJ state taxes by “Jake and Company”, aka the NJ Division of Taxation’s “Taxation University”. The “Jake” is Jake Foy, head of TU, who has been a fixture at this annual seminar for almost 2 decades.
Jake started off on the topic of “tax updates” by telling us that, as was the case last year, the refunds requested on 2017 NJ-1040s will NOT begin to be issued until March 1st – regardless of when you actually file your return. Otherwise, NJ expects to process NJ-1040s and get refunds to NJ taxpayers within 3-4 weeks.
If you sent in your return today requesting a refund, either manually or electronically, you would NOT get your check, or a direct deposit of your refund, until March 1st.
Many NJ taxpayers chose to prepay the February and May 2018 property tax payments in December of 2017 to get a 2017 federal tax deduction, in response to the changes for 2018 – 2025 made by the GOP Tax Act. If you did this it will not affect either your 2017 or 2018 NJ-1040 filing.
For NJ-1040 purposes, the state only cares that what is considered the calendar year’s tax assessment – taxes due on February 1, May 1, August 1, and November 1 - are paid in full. They do not care in what year these assessments are paid. You can only deduct up to $10,000 in 2017 property taxes on the 2017 NJ-1040, and you can only deduct tax payments due in 2018, again up to $10,000, on the 2018 NJ-1040, regardless of when you actually made the payment. So, prepaying 2018 taxes in 2017 does not increase your 2017 NJ-1040 deduction, and it does not reduce your 2018 NJ-1040 deduction.
With regard to the deduction on the NJ-1040 for property taxes, like, coincidentally, the GOP Tax Act limited to $10,000, NJ has different rules for who can claim how much than the federal rules and regulations for the property tax deduction. This was not discussed in detail at the seminar, but I will share here what I have learned over the years, often from specific situations with my clients.
The NJ-1040 deduction is available only to the owner(s) on the title of the property, and in the same proportion as their percentage of ownership. If there are two unmarried owners each is entitled to deduct 50% of the property’s taxes. NJ considers a married couple to be ONE person.
So, if the owners of the property listed on the title are the father, mother and son, although there are 3 people who own the property, because husband and wife are 1 person, the mother and father can deduct 50% of the taxes on their joint NJ-1040 and the son can claim 50% - but only if all three people actually live in the home. If the parents live in the home, using 100% as their personal residence, and the son lives in another home, the parents can deduct 50% of the taxes, up to $10,000, and the son can deduct NONE of the taxes on that property. If the son owns and lives in another property he can claim the property taxes on that property as a deduction.
Unlike the IRS, NJ does not care who actually pays the property taxes. Even if the parents in the above example pay 100% of the real estate taxes they can still only deduct 50% - though the parents can, and do, claim 100% of the property taxes on their federal Schedule A.
Bottom line – the NJ-1040 deduction for property taxes is not always the same as the federal deduction for property taxes.
In the above example the same 50% applies to the Homestead Benefit and, if applicable, Property Tax Reimbursement applications of the parents.
The NJ Retirement Income Exclusion will increase to $75,000 for individuals, $100,000 for joint filers, and $50,000 for married couples filing separately over four years beginning with the 2017 NJ-1040. Here, from the NJDOT website, is the phase-in schedule. Note the numbers for tax year 2017.
A NJ taxpayer who is “a veteran honorably discharged or released under honorable circumstances from active duty in the Armed Forces of the United States, a reserve component thereof, or the National Guard of New Jersey in a federal active duty status” by the last day of 2017 is eligible for a $3,000 exemption on his or her NJ state income tax return. This exemption is in addition to any other exemptions the taxpayer is entitled to claim and is available on both resident and nonresident returns. The exemption can be claimed by both spouses on a joint return if they qualify, but the exemption cannot be claimed for a domestic partner or dependents.
You must provide a copy of documentation of your honorary discharge when filing your return. According to Jake, the Division will be flexible in considering documentation of a taxpayer’s veteran status, and will accept copies of the DD214, DD256, or a driver’s license with veteran status – which is a license which has the word “VETERAN” on it. This documentation must be submitted ONLY in the first year you are claiming the additional veteran’s exemption. If you submit your documentation when filing your 2017 NJ-1040 you do not have to submit any documentation again in future years.
I was pleased that Jake announced the state’s corporate business income tax return (CBT) e-file “mandate” has once again been suspended. This requirement, that does not have an “opt-out” option like the NJ-1040 does, and applies regardless of whether or not the corporation uses a paid tax professional, will not be enforced until NJDOT is able to allow corporations to submit their CBT-100 or CBT-100S returns directly to the state online, without having to buy outside software, as it does with 1040s via the NJWebFile system (which I use whenever possible).
The seminar also discussed the NJ Property Tax Relief programs – the Homestead Benefit and the Property Tax Reimbursement (aka “Senior Freeze”). There is nothing new here – other than that it is “anticipated” that the NJ Homestead Benefit property tax credits for the application filed in 2017 will be applied to either the May 1 or August 1 quarterly payments and checks sent out soon thereafter. Of course, there is no guarantee that this will be done – as the cafones in the NJ legislature always defer or curtail the property tax relief programs to balance the budget (God forbid they should actually try to cut government expenses, especially the excessive “entitlements” provided to legislators and other government officials).
The TU speaker addressed two scenarios related to the Property Tax Reimbursement program. One is the homeowner that qualified to participate in the program years ago, but is just now submitting his or her first application. This person should complete and submit a separate Form PTR-1 for each past year that they qualified for the reimbursement. They will obviously not get any actual reimbursements for any of these years, but doing this will establish a “base year” tax amount that represents the actual first year they qualified. The base year is used in calculating the reimbursement. If the base year tax was $6,000 and the current application year tax is $10,000, the qualifying homeowner will get a check for $4,000.
Another scenario concerned a qualifying couple who had been filing the PTR-2 application each year, and receiving a reimbursement, but, for some reason, such as the severe illness of one spouse, they forgot to file two or three years of applications, and in doing so lost their base year. They should call the NJDOT and request PTR-2 applications forms, preprinted with their original base year, for each missed year and complete and submit these applications. Again, no reimbursement will be issued for the missing years, but by doing this they can reinstate their original base year.
It is important to remember that in calculating the income used to determine eligibility for the reimbursement ALL income is included, including income not taxed on the Form NJ-1040 (Social Security or Railroad Retirement benefits, unemployment, tax exempt interest or dividends, etc.).
Usually an applicant must own title to the property for which he/she is applying for both programs. But, if a qualifying person lives in the property as a “life tenant” under a “life estate” and the title is in the name of another individual(s) or a family trust, he/she, the “life tenant”, can apply for the benefit or reimbursement.
As a point of information, the NJDOT speaker told us that the Homestead Benefit amount is currently based on the tax assessed on the property for 2006. The benefit amount is either 5%, 6.6667% or 10% of this tax assessment, based on the applicants age (or if disabled) and level of applicable year’s (tax year 2016 will be used for the 2018 Homestead Benefit application for benefits issued in 2019) NJ Gross Income (line 28 on the NJ-1040).
So, there you have “the word” on NJ taxes. The actual 2017 NJ-1040 and applicable instructions are not yet available at the NJDOT website. I will let you know here when it is, and will identify any changes to the form.