New Jersey Pass-Through Entities Can Now Pay Income Tax

BAIT is good news for NJ taxpayers who own pass-throughs

NJ Division of TaxationOn January 13, 2020, New Jersey passed a law that allows pass-through entities to pay income tax at the entity level.

What’s the law? What does this mean?

The Pass-Through Business Alternative Income Tax Act (BAIT) allows pass-through businesses to pay income taxes at the entity level instead of the personal level. Most pass-through entities are owned by an individual or group of individuals. Income from that entity flows through to the owners and the owners pay tax on the income.

Why?

The Tax Cuts and Jobs Act (TCJA), passed in 2017, limited individual taxpayers to a $10,000 itemized deduction for state and local taxes on their federal income tax returns. Therefore, when taxpayers compute their personal property taxes, real estate taxes and state income taxes, they are limited to claiming a $10,000 deduction if they itemize.

Enacting this legislation allows New Jersey taxpayers a way to work around the $10,000 limitation by allowing pass-through entities to pay income tax instead of the individual. It may help taxpayers who have ownership interests in pass-through entities maximize the deduction of state and local taxes on their individual federal returns.

When?

The BAIT is effective for tax years beginning on or after January 1, 2020.

What should I do?

Speak with your tax professional about this new law and decide if the election should be made for 2020.

Put the Real Estate Tax Guy on your team. For additional information or to set up a consultation, contact Simon Filip at [email protected] or (201) 655-7411.