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CONNECTICUT
Connecticut Among States Trying to Circumvent Tax Changes
While the long-term effects of the recently passed Tax Cuts
and Jobs Act remain to be seen, one of the more controversial
changes in the law involves caps on interest payment deductions
and property tax deductions. Before the tax reform bill, homeown-
ers could deduct interest payments on home loans worth up to $1
million. e Tax Cuts and Jobs Act decreases that to $750,000, as
well as capping annual property tax deductions at $10,000 when
there was no cap on this previously. Now some affected states are
looking for ways to minimize or eliminate the financial penalties
the tax law would impose on homeowners with high property
values.
As reported by USA Today in January, the states of New York,
New Jersey, and Connecticut formed a coalition to sue the federal
government over the tax changes. Whether that works or not, in
the meantime Forbes reports that several states are coming up
with plans to allow homeowners to work around the new caps and
reduce their resulting tax burden under the new law.
So what do these plans look like? In Connecticut, Gov. Dannel
P. Malloy has put forward a proposal that would allow cities and
towns within the state to create state-owned charitable organiza-
tions that taxpayers could donate into, after which they would re-
ceive an equivalent tax credit. So, as Forbes explains, "...in theory,
a homeowner with a $12,000 tax bill could instead donate $12,000
to their town's charity and end up owning nothing in taxes."
New York's Gov. Andrew Cuomo has put forward a similar
plan, which would allow New Yorkers donating to the proposed
state-owned charities to get an 85 percent tax credit back on their
strategic donations. However, Cuomo also proposes instituting a
voluntary payroll tax in which participating employers would pay a
5 percent tax annually on employee payroll expenses above $40,000
a year. ose employees would then receive state income tax cred-
its that would reduce their federal tax liability, in theory.
Could these plans work? U.S. Treasury Secretary Steven
Mnuchin has called the idea "ridiculous." Time will tell who is
right.
