By Canadian Press

In high-tax states, worries about pain from GOP tax plan

Nov 3, 2017 | 3:47 PM

SOUTH ORANGE, N.J. — Homeowners in high-tax states like New Jersey, where a modest house within commuting distance of New York City can easily carry property taxes of over $15,000 a year, are wondering whether the Republican bill being sold as a tax cut would actually result in higher bills for them.

At issue are provisions that would end deductions for state and local sales and income taxes and would cap the property tax deduction at $10,000.

James Ledoux, a computer programmer who lives in South Orange with his veterinarian wife and their toddler and is expecting a second child, said he now has $46,000 in itemized deductions — around $19,500 from property taxes, $7,000 in state income taxes and the rest from mortgage interest.

He estimates that losing those deductions would drive up his federal taxes by $4,000 a year — enough to call into question whether they can continue to afford the $630,000 house they bought three years ago.

If not for the mortgage interest deduction, “I would have rented,” he said. “We did the math, said, ‘Hey, we could afford this. It’s a great school district, quiet neighbourhood. We’ll have a bedroom for each child and a bedroom for ourselves.’ It’s not an extravagant mansion.”

The changes could hit hard in New Jersey and other high-tax states such as New York, Massachusetts and California. Those are places dominated by Democrats. But the deduction changes are giving Republican members of Congress pause, too.

Three of New Jersey’s five Republican congressmen said they would against it because of the change. Rep. Frank LoBiondo called the change “detrimental” to New Jersey residents and Rep. Leonard Lance said it was “unacceptable.”

Another major feature of the GOP plan being considered would nearly double the standard deduction to $24,000 for married couples. That would simplify taxes for many people, while also wiping out the benefits of itemizing deductions for some.

In Roseville, Minnesota, Craig Stilen and his wife itemize their tax returns. But in part because of the way the GOP proposal gives with one hand and takes with the other, Stilen hasn’t been able to work out what the tax overhaul could mean for his family financially.

“There are a lot of moving parts that me, as Joe Consumer, is trying to digest,” said Stilen, a 56-year-old who works in information technology.

Richard Middleton, an accountant in Cherry Hill, New Jersey, said the phone hasn’t exactly been ringing off the hook with concerned clients — most of whom are higher-income.

But one member of his firm redid the 2016 taxes for a wealthy client using the proposed changes. The change, Middleton said: a bill $116 smaller.

Middleton said the $10,000 cap on property tax deductions won’t have as big of an impact as it might sound in a state where the average bill was $8,300 last year.

That’s because many New Jersey residents are now subject to the federal alternative minimum tax. The AMT is intended to keep high-earners from using lots of deductions to reduce their tax bills.

The majority of households that earn more than $200,000 are subject to the AMT, which would go away under the legislation.

Pharmaceutical company scientist Sean Kohler and his wife bought a $380,000 three-bedroom house in the Philadelphia suburb of Voorhees, New Jersey, a couple of years ago with plans to stay for good and have kids.

They make about $160,000 but are still paying off student loans and have an annual property tax bill of about $15,000. He said that if the GOP plan goes through, their tax hit could run into the thousands, and they might have to adjust their goals.

“This really changes a lot of things,” Kohler said. “That would be a lot of money I feel like we’re going to have to come up with in April to make this work.”

___

Mulvihill reported from Haddon Heights. AP reporter Kyle Potter in St. Paul, Minnesota, contributed to this story.

___

This story has been corrected to fix the name of a town in New Jersey. It’s Vorhees, not Vohees.

David Porter And Geoff Mulvihill, The Associated Press