The Tax Cuts and Jobs Act is more than 180 pages, but a mere 13 lines arguably have received the most attention. The 13 lines set out the $10,000 state and local property tax cap.

Before 2018, taxpayers who elected to itemize their deductions on their personal income tax return could claim a deduction for their state and local taxes paid during the taxable year. The Tax Cuts and Jobs Act limits this deduction to $10,000 for the period 2018 through 2025.

This limitation has resulted in a number of states—including New York, New Jersey, Connecticut, and California—proposing or enacting legislative alternatives. One of the most popular is where the state creates a charitable fund to support certain public purposes, which a taxpayer can contribute to in exchange for a partial state tax credit against income taxes. The aim of this alternative is to circumvent the $10,000 cap through the use of charitable contributions, as such contributions are still fully deductible under the federal internal revenue code. (For more information on this and other alternatives, please see the article by Walter Calvert and Tammara Langlieb, "The Clash of Freedom: How States Are Responding to the Tax Act" in State Tax Notes, published on May 14, 2018.)

This alternative has been both questioned and praised by academics, tax advisors, and economists. The main concern is that in order for a charitable contribution to be deductible, it cannot primarily benefit the contributor. Because the contribution would reduce a taxpayer's state tax liability, some perceive it as simply an advance payment of tax (not a charitable contribution).

Since it was first proposed by certain state leaders, the White House has not favored it. Speaking at the White House on January 11, 2018, Treasury Secretary Mnuchin called the idea of using charitable contributions "one of the more ridiculous comments, to think that you can take a real estate tax that you're required to make and dress that up as a charitable contribution."

On May 23, 2018, the Service issued a Notice 2018-54 stating that it will be issuing a proposed regulation to address the deductibility of state and local tax payments for federal income tax purposes. This Notice informs taxpayers that they "should be mindful that federal law controls the proper characterization of the payments for federal income tax purposes," regardless of the characterization of the payments under state law.

In reaction to this Notice, New Jersey Attorney General Gurbir S. Grewal has issued a letter to the IRS urging it to "not play politics," otherwise New Jersey will "challenge the new rule in court."

The clash between the states and the federal government can be expected to continue, and taxpayers should proceed with care.