New York State passed a budget Saturday that creates a pair of loopholes designed to mitigate the effect the Trump administration’s tax overhaul will have on property taxes, though it’s uncertain if the moves will prove effective.
One aspect of Gov. Andrew Cuomo’s plan allows taxpayers to convert local property taxes into charitable contributions, and then claim the “donations” as charitable write-offs on their federal taxes, the New York Times reported.
Several states have considered similar measures, but New York’s will be the first litmus test. It will likely be questioned, if not quashed, by the Internal Revenue Service.
“I think it’s quite possible that now that New York has adopted such legislation through the budget, and other states are considering it, that we may see I.R.S. guidance clearly disallowing this,” said Jared Walczak, a senior policy analyst at the Tax Foundation. “Existing case law already makes this plain, but states have muddied the water.”
Cuomo’s second measure would allow wage earners to convert their income tax into a payroll tax that could be deducted from their federal taxes. The move seems to be on firmer legal ground, but it might be difficult to convince large work forces to adopt it.
Employees would have to take a cut on their gross pay, with the promise that their net pay after taxes will rise.
“Those that would be most likely to take advantage of it are going to be small companies consisting of highly compensated employees,” Walczak said. “So you might think of a hedge fund taking advantage of this, but not a larger corporation that has people across the wage scale.” [NYT] – Rich Bockmann