For the New Jersey state return, it is a credit if you qualify, there is no deduction on the state return.
I have claimed deduction for many years. It is either deduction or credit and I want to use it as a deduction.
Homeowners and tenants who pay property taxes, on a principal residence in New Jersey, either directly or through rent, may qualify for either a deduction or a refundable credit when filing an Income Tax return.
The property tax deduction reduces your taxable income. You can deduct your property taxes paid or $15,000, whichever is less.
Go back to the New Jersey Tax summary page and Update the Taxes and Credits. You will be able to enter the information in this section to get the deduction.
Thanks !
I did it few times and it always chooses the "Credit"
Credits are typically more valuable than deductions. Credits reduce your tax liability dollar-for-dollar while deductions reduce income prior to calculating the tax liability. TurboTax will choose the most valuable to the taxpayer. We cannot see your return in this forum, but this may be the case. You can review your return to determine the impact.
There is a definite DEFECT with turbo tax in calculating the tax savings between NJ property tax deduction and property credit of $50.
I have tried this a few times.
For example,
My property tax is 5000. My marginal NJ tax rate is 6.37%
So the effective reduction of tax is property tax deduction is $318
However, it always picks tax credit of $50.
Turbo tax, pls fix this bug for NJ property tax deduction vs property tax credit!!
Also, if user enters 2 or more residences over the tax year, one as rental and one as home, Turbotax does NOT sum the property tax together, at all and completely ignores the the property tax from the rent apt (18% of your rent paid in that time period). This should be summed together as per NJ tax worksheet G and H in the NJ 1040 instructions!!!
PLS FIX THIS.
Is it possible that you have been given the benefit of the standard deduction for NJ an an additional $50 credit for real estate taxes.? Things did change a lot this last year. https://patch.com/new-jersey/pointpleasant/2019-tax-returns-what-you-should-know-new-jersey#:~:text=Standard%20Deduction&text=Single%3A%20%2412%2C200%20%E2%80%94%20Up%20from%20%2412%2C000,Up%20from%20%2418%2C000%20for%202018.
I hate the new tax law from the Feds. It was done to punish states like New York and New Jersey and to disadvantage home ownership in favor of landlords. Hmmmm
You must enter the property taxes in the Federal section of the return under Deductions and Credits.
Qualified homeowners and tenants are eligible for a deduction for property taxes they paid for the calendar year on their New Jersey principal residence. The new law increases the maximum Property Tax deduction from $10,000 to $15,000. For more information about the deduction, see Property Tax Deduction
Tenants and those homeowners who are not eligible for the Homestead Benefit because on October 1, 2020, they were not homeowners, may complete Form NJ-1040-HW to claim the property tax credit or they may claim the credit on Form NJ-1040. Do not file both Form NJ-1040 and Form NJ-1040-HW.
New Jersey gives qualified homeowners and tenants either a property tax deduction or credit. TurboTax will compute the best result for you.
Check your answers property tax deduction/credit screens to make sure you filled out the information correctly. Also check whether the about of property taxes paid on principal residence is correct on the screen We Need to Know About Your Property Taxes.
Homeowners and tenants who pay property taxes on a primary residence (main home) in New Jersey, either directly or through rent, may qualify for either a deduction or a refundable credit when filing an Income Tax return.
The property tax deduction reduces your taxable income. You can deduct your property taxes paid or $15,000, whichever is less. For Tax Years 2017 and earlier, the maximum deduction was $10,000. For tenants, 18% of rent paid during the year is considered property taxes paid. Keep in mind that the amount of property taxes paid that you can deduct depends on a number of factors, such as the number of owners or units. Visit Determining the Amount of Property Taxes Paid for more information.
The property tax credit reduces your tax due because it is subtracted directly from your tax liability. The benefit is a refundable credit of $50.
You can claim only one of these benefits on your tax return. If you qualify (see Eligibility Requirements), follow the instructions in the New Jersey Resident Income Tax return (Form NJ-1040 ) to determine if the credit or deduction will give you the greater benefit.
Refer to: NJ Income Tax Property Tax Deduction/Credit for Homeowners and Tenants
NJ gives you the better of the two, which can change from year to year. See Worksheet H on page 28 here:
Instructions for the 2020 NJ-1040 (state.nj.us)
If you still think TT is wrong, please post back.
I'm wondering if this is a glitch because I'm working in NY and living in NJ. Does this make my NJ tax liability pretty much zero and hence the NJ property tax deduction wasn't better than the $50 credit? If so, is there a way to fix this?
According to this link from NJ.gov, you can take both. If your taxable income was nominal, Turbo Tax may have determined that the credit was more advantageous than the deduction.
Select this link and see if this will help you make a decision on whether or not to take the deduction or credit. Working in New York should not have any effect in your calculation, as far as determining a deduction or credit.
Thanks Dave! My income is >$100k and property tax $10k+ so I assume $50 credit isn't the right option. But it is what Turbotax assigned me, and there's no way to manually fix this. A CPA at TurboTax was looking into this last week as he couldn't figure out while on the phone with me, but he never got back to me to close the loop. Are you sure TurboTax isn't considering my "NJ taxable income" which would technically be cancelled out via credit (something like NJ-COJ) since I work in NY?
TurboTax is correct. The property tax credit is better because your NY other state tax credit will offset all your NY income without needing to deduct property taxes. Therefore it is better to use the credit, since the property tax deduction is unnecessary to reduce your NJ tax liability (net of the NY credit). This is NJ’s computation which TurboTax uses.
Schedule NJ-COJ computes the allowable credit with or without the $10,000 property tax deduction. In this example, the max credit with the $10,000 deduction is $3,545 and $4,182 without it.
Worksheet I shows no tax is owed whether the property tax is deducted or not. Therefore is it better not to deduct any property tax, since the deduction is not needed—and claim the credit instead.
Oh wow - this is quite surprising to hear. This essentially means I don't get any state tax deduction from being a homeowner just because I work in NY and live in NJ. That seems unfair. Would think NY would somehow take this into account, otherwise many people in my situation wouldn't get any tax benefits from owning a home at all...
Please reread Ernie50 explanation given above. You are given a tax credit for working in the state of New York. The property tax credit is better because your NY other state tax credit will offset all your NY income without needing to deduct property taxes. The property tax deduction is unnecessary to reduce your NJ tax liability (net of the NY credit).
Ernie50 has taken the time to work this out and he determined the credit was the best solution to take because by taking the deduction, the credit would be $3545 and $4182 without it.
Think of it this way. You can choose to take the $10,000 deduction but would you rather have $3545 in your pocket or $4182? The tax code can be tricky sometimes and confusing but it is in accordance to the way it is designed.
Thank you Dave and Ernie. Appreciate your help! Definitely wasn't trying to come off as doubting your recommendation, but it does seem like whether or not I own a home in NJ does not make any difference in my state taxes owed. I used to think home ownership meant some tax benefits, and I get that it most often doesn't anymore at the federal level given high standard deduction, but for states I always thought it would lead to some tax savings. The logic here seems super convoluted and as if the law is trying to punish home ownership 🙂
Yes this seems weird to me. There are millions of NJ homeowners who work in NYC and their property taxes are above 10K/15K.
According to the "Worksheet I instructions", there is special handling for New York State workers.
"Income From New York. When claiming a credit for taxes paid to New York, the amount on line 1 must reflect the “New York State Amount” actually taxed by New York from the New York IT-203. Certain adjustments may be necessary to determine the income actually taxed by New York. If you are subject to the New York tax on lump-sum distributions, complete separate Schedule NJ-COJs for the ordinary income and the lump-sum distribution."
I am not sure if the language is vague OR There is some way to override this deduction/credit choice.?
There is no way to choose the property tax credit or deduction. The worksheets provided by the State of New Jersey are used to determine which method provides the greater tax benefit.
It may seem that deducting $10k/$15k of property tax is more beneficial than claiming a $50 tax credit. However if your NY other state tax credit has reduced your NJ tax liability to less than $50 without taking into account the property tax deduction, then the credit is better.
Hi Ernie, i have the same issue, i think if i would deduct $5227 property taxes i will pay less NJ taxes.
Turbotax wants to do $50 credit, totally i have to pay $270 to NJ, if i would do $5227 property tax deduction i would have to pay $0 to NJ i am right ?
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@slavid you are correct. If Turbotax calculates a $50 credit, and you pay $270 to NJ, then with a $5227 property tax deduction you would have pay $0 to NJ.