The new tax laws that were passed in December of 2017 are especially harmful to those of in blues states with high property taxes. New Jersey property owners are the hardest hit by the new $10,000 limit on state and local tax deductions. Reports indicate that it will result in tax increases for more than 10% of New Jersey homeowners, particularly those of us in high tax counties like Essex, Bergen and Morris.
Initially, some state governments and towns like Montclair tried to figure out a way around the limit for their citizens, but the IRS shot most of those down. Several states have also filed a lawsuit opposing the tax as well. Meanwhile estate planning can also provide a work around, as discussed in the Bloomberg news. "How the Rich Can Dodge Trump's Property Tax Hike."
The idea is to create an LLC in a non-tax state such as Delaware or Alaska. Real estate ownership is then transferred to the LLC. After that, several non-grantor trusts are created. Ownership of the LLC is then divided up and transferred to the new trusts. When tax time comes around, each non-grantor trust can take a $10,000 deduction for any property taxes that were paid by the LLC. However, this is not a silver bullet. There are substantial costs associated with setting up the scheme. In addition, the trusts have to generate income to offset the deduction. There are also negative tax consequences upon sale of the property. However, for some individuals the tax savings will be substantial and would therefore justify the complexity and expense.