Boosting Property-Tax Relief For NJ renters

The affordability initiative could pay dividends to renters statewide, as well as homeowners and businesses

While many of New Jersey’s property-tax relief initiatives are designed to ease the burden on homeowners, the state for years has offered a break to renters who also get hit indirectly by high property taxes.

That break comes in the form of a deduction on state income taxes filed by people who rent.

With the latest data from the state indicating the average property-tax bill has risen once again in New Jersey — hitting a record high of $9,284 last year — lawmakers are now looking at ways to make that income-tax break for renters more generous. 

The effort comes as majority Democrats in Trenton have begun to put affordability issues on the front burner following a November election that saw Republicans pick up seats in both houses of the Legislature. That election also unseated Steve Sweeney, a Democrat who was the longest-serving Senate president in state history.

A bigger break for renters

One of the bills approved by a key Senate committee Thursday would make formulaic changes to the income-tax write-off for renters, so a bigger share of their annual rent payments can be deducted from their taxable income.

The proposed policy change won praise from New Jersey housing advocates, and sponsors of the bill said the decision to kick off the legislative session that began earlier this month by advancing such affordability measures was no mistake.

In addition to the proposal to boost property-tax relief for renters, the Senate Community and Urban Affairs Committee also approved legislation Thursday that would provide more funding to municipal governments, also in an effort to ease pressure on local property taxes.

“Let us be clear that we need to strive for a more affordable New Jersey, and (by) the same token, to strive for a New Jersey that’s also equitable, to make sure everyone has an opportunity to live and achieve their own version of their American dream in our state,” said committee chair Troy Singleton (D-Burlington).

In all, the state’s annual budget devotes more than $1 billion in spending to direct property-tax relief programs, including the Homestead Benefit and the Senior Freeze. Those programs offer targeted tax breaks to groups of homeowners who meet certain income qualifications, such as seniors and the disabled and low- and middle-income residents.

Costly write-offs

But the costliest direct property-tax relief program is one that provides a state income-tax write-off to homeowners and renters, regardless of their income, to help offset their local property-tax burdens.

For homeowners, the write-off allows them to deduct from their state taxable income the amount paid annually in local property taxes, up to $15,000. For renters, who don’t pay property taxes directly, the write-off generally allows them to deduct up to 18% of their annual rent payments.

Several years ago, Gov. Phil Murphy and the Democratic-controlled Legislature worked together to lift the cap on the tax write-off, from $10,000 up to $15,000. The policy change came about the same time former President Donald Trump and a then-Republican Congress put a new, $10,000 cap on a similar federal tax deduction for state and local taxes, including property taxes.

The legislation sponsored by Singleton calls for increasing the 18% limit up to 30%.

Estimates drafted last year by the nonpartisan Office of Legislative Services indicated that policy change could end up costing the state as much as $130 million annually in lost taxes.

But that loss of revenue would come at a time when New Jersey tax collections have soared well above projected growth targets, including the income tax, which is the budget’s largest source of revenue.

Singleton, who is the bill’s prime sponsor, also suggested the loss of revenue to the state should be viewed as tax relief for tenants who pay some of the highest rents in the country.

“Renters pay property taxes, too,” Singleton said. “The higher deduction results in real savings for tenants.”

Housing advocates said low-income residents often get hit the hardest because rent payments take up a larger share of their annual incomes compared with those who have higher incomes. And by some estimates, the cost of renting an apartment in New Jersey has gone up by more than 15% since January 2021 as the state deals with the ongoing coronavirus pandemic.

Sheila Reynertson, senior policy analyst at New Jersey Policy Perspective, a Trenton-based think tank, told lawmakers during Thursday’s hearing that the top priority should be getting the most relief to those renters who are “most in need of help.”

“It’s important to tie affordability to everybody in New Jersey, so that it’s an equitable change for all,” she said.

Restoring funding to municipalities

Meanwhile, also advancing out of the committee Thursday was legislation that calls for restoring funding to municipal governments that is collected by the state on their behalf from public utility companies. But going back over a decade, billions of dollars of what are known as “energy tax receipts” were diverted into the state budget to help close shortfalls, and advocates for municipalities have long called for the funding to be restored.

Under the bill, payments would be made by the state over several years to municipalities to make them whole. Another provision is for the restored funding to be used to reduce the municipal tax levy, the funding generated annually through local property taxes.

And while discussions about high property taxes typically center on how they affect New Jersey homeowners, business advocates praised the bill and said property taxes are also a major issue for the state’s businesses as well.

“Small businesses especially struggle with property taxes. It’s often one of the biggest taxes they pay,” said Christopher Emigholz, vice president of government affairs at the New Jersey Business & Industry Association.

“Bills like this start to make a difference,” he said.

Original Article