Tax Season Reminders for NJ Veterans, Retirees and Those Who Prepaid Property Taxes
February 12, 2018
ROSELAND, N.J. — As tax season opens, the New Jersey Society of CPAs (NJCPA) is reminding New Jersey residents of three important tax changes as they file their state tax returns. Those taxpayers who prepaid a portion of their 2018 property taxes, as well as veterans and retirees, need to be aware of some important tax changes.
Property Tax Prepayers
For those who have prepaid a portion of their 2018 property tax payments in 2017, NJCPA cautions taxpayers to be conscious of how they claim the deductions on their New Jersey tax return since they can only claim the property taxes they paid for the year in which they were due, up to a $10,000 maximum. Only payments for 2017 property taxes can be deducted on the 2017 New Jersey tax return; the prepayment of 2018 property taxes will be deductible on the 2018 New Jersey tax return. As the New Jersey Division of Taxation notes, “...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.” This differs from the rules for deducting property tax payments on federal tax returns, where the date of the payment determines when the deduction can be taken.
Consider the following example:
A homeowner whose property taxes are $8,000 per year paid all of his 2017 property taxes ($8,000) during 2017 and also prepaid the first two quarters of his assessed 2018 property taxes ($4,000) on December 27, 2017.
- On his 2017 federal tax return, he can claim a property tax deduction of $12,000 — the total of all property tax payments assessed and paid in 2017.
- On his 2017 New Jersey tax return, he can only claim a property tax deduction of $8,000 — the total of all property taxes assessed in 2017. The $4,000 prepayment of his 2018 property taxes will be deductible on his 2018 New Jersey tax return, even though the payment was made in 2017.
The state and federal distinctions are particularly important for those New Jersey taxpayers who have filed their returns via tax preparation software. Taxpayers who have prepaid some of their 2018 property taxes need to make sure the right amount is used when transferring information from federal to state forms when using the software. According to the New Jersey Division of Taxation, “You may need to manually enter the 2017 property tax paid to New Jersey to exclude any prepayment of 2018 property taxes.”
“In light of the federal tax reform bill, taxpayers have to be diligent in understanding the timing of new provisions versus existing rules. There is likely to be a lot of confusion,” said Ralph Albert Thomas, CEO and executive director, NJCPA.
Those who have been honorably discharged or released from active duty in the Armed Forces, Reserves or National Guard the last day of the tax year are now eligible for an additional $3,000 personal exemption on their New Jersey tax return. More information about qualifying for the exemption can be found on the Division of Taxation’s website at state.nj.us/treasury/taxation/military/vetexemption.shtml.
Retirees also are eligible for important tax benefits. Retirement income exclusions increase for tax year 2017 for those New Jersey residents who have gross income of $100,000 or less. The income exclusions doubled to $40,000, $30,000 and $20,000 for filers who are married filing jointly, single or married filing separately, respectively. The exclusion amounts will continue to increase through tax year 2020. See table below.
NJCPA recommends New Jersey taxpayers contact their CPAs for assistance over matters that relate to their particular situation. To assist with finding a local CPA, NJCPA offers its “Find-A-CPA” directory where individuals and business owners can search for CPA firms by specialty, industry served and location.
The IRS and New Jersey Division of Taxation began accepting tax returns for the 2017 tax year on January 29, and taxpayers have until April 17 to file. An extra day has been added to the calendar this year for filing due to Emancipation Day on April 16.
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The New Jersey Society of Certified Public Accountants, with more than 15,000 members, represents the interests of the accounting profession and advances the financial well-being of the people of New Jersey. The NJCPA plays a leadership role in supporting the profession by providing members with educational resources, access to shared knowledge and a continuing effort to create and expand professional opportunities. Visit njcpa.org.