Senator TROY SINGLETON
District 7 (Burlington)
Senator VIN GOPAL
District 11 (Monmouth)
Provides refundable gross income tax credit for early principal payments on certain home mortgages.
CURRENT VERSION OF TEXT
An Act providing a credit under the New Jersey gross income tax for early payments of principal on certain home mortgages, supplementing Title 54A of the New Jersey Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. a. A taxpayer shall be allowed a credit against the tax otherwise due for the taxable year under the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., in an amount equal to 50 percent of the excess home mortgage principal payments made during the taxable year on the taxpayer’s principal residence in this State, which credit amount shall not exceed $1,000 for a taxable year.
b. As used in this section:
"Acquisition indebtedness" means indebtedness which is incurred in acquiring, constructing, or substantially improving the principal residence of the taxpayer that is secured by that residence; and shall include indebtedness secured by that residence resulting from the refinancing of indebtedness that was incurred in acquiring, constructing, or substantially improving the principal residence of the taxpayer; but only to the extent the amount of the indebtedness resulting from the refinancing does not exceed the amount of the refinanced indebtedness.
“Excess home mortgage principal payments” means, with respect to qualified home mortgage indebtedness for any taxable year, the excess of
(1) the aggregate amount of principal paid by the taxpayer with respect to such indebtedness during the taxable year, over
(2) the aggregate amount of principal which would have been paid by the taxpayer with respect to such indebtedness during such taxable year if the taxpayer had timely made each required payment under the terms of the indebtedness during such taxable year (and no other payments);
“Homestead” has the same meaning as “homestead” as defined in section 2 of P.L.1996, c.60 (C.54A:3A-16);
"Principal residence" means a homestead actually and continually occupied by a taxpayer as the taxpayer's permanent residence, as distinguished from a vacation home, property owned and rented or offered for rent by the taxpayer, and other secondary real property holdings.
“Qualified home mortgage indebtedness” means acquisition indebtedness if
(1) the residence with respect to such acquisition indebtedness is the primary residence of the taxpayer, and
(2) the indebtedness
constitutes a traditional mortgage.
“Traditional mortgage” means indebtedness
(1) the term of which is not less than 15 years and not more than 30 years, and
(2) the required payments under which are each the same amount and made in equal intervals during the term of the indebtedness (or if any payment is required at a different interval, the amount of such payment is adjusted in the same proportion as the change in interval).
c. The amount of the credit allowed pursuant to this section shall be applied against the tax otherwise due under N.J.S.54A:1-1 et seq., after all other credits and payments. If the credit exceeds the amount of tax otherwise due, that amount of excess shall be an overpayment for the purposes of N.J.S.54A:9-7; provided however, that subsection (f) of N.J.S.54A:9-7 shall not apply.
d. Notwithstanding the annual maximum credit amount of $1,000 provided for in subsection a. of this section for a taxable year:
(1) a taxpayer who files for gross income tax purposes as an unmarried individual, who has more than $125,000 of taxable income for the taxable year, before the allowance of any exemptions, deductions, credits, or exclusions, but not exceeding $135,000 for the taxable year, before the allowance of any exemptions, deductions, credits, or exclusions shall determine the taxpayer’s annual maximum credit amount allowed pursuant to subsection a. of this section by reducing that amount by 10 percent for each $1,000 of taxable income exceeding $125,000, but not exceeding $135,000; and
(2) taxpayers who file for gross income tax purposes as married individuals filing a joint return, who have more than $250,000 of taxable income for the taxable year, before the allowance of any exemptions, deductions, credits, or exclusions, but not exceeding $270,000 for the taxable year, before the allowance of any exemptions, deductions, credits, or exclusions shall determine the taxpayer’s annual maximum credit amount allowed pursuant to subsection a. of this section by reducing that amount by 20 percent for each $2,000 of taxable income exceeding $250,000, but not exceeding $270,000.
e. Married individuals filing separately for gross income tax purposes for a taxable year shall not be allowed a credit pursuant to this section.
f. No taxpayer shall be allowed a credit pursuant to this section after the taxpayer, including as a married individual filing a joint return, has been allowed a credit pursuant to this section for any ten preceding taxable years.
2. Notwithstanding any provision of P.L.1968, c.410 (C.52:14B-1 et seq.) to the contrary, the Director of the Division of Taxation, Department of the Treasury, may adopt immediately upon filing with the Office of Administrative Law such regulations as the director deems necessary to implement the provisions of this act, which shall be effective for a period not to exceed 360 days following enactment of P.L. , c. (C. ) (pending before the Legislature as this bill) and may thereafter be amended, adopted or readopted by the director in accordance with the requirements of P.L.1968, c.410. The regulations may include directions for persons engaged in a trade or business who receive from any individual interest aggregating $600 or more for any calendar year on any mortgage, who are required by law to report to the Secretary of the Treasury, and to provide to mortgagors, through information returns, mortgage interest payments from individuals, to include on the information returns and provide to mortgagors the amount of excess home mortgage principal payments received for any calendar year.
3. This act shall take effect immediately and shall apply to taxable years beginning on or after January 1 next following the date of enactment.
This bill provides for a refundable gross income tax credit for 50% of early home mortgage principal payments that taxpayers make in addition to their required monthly mortgage payments. Extra payments made in addition to home mortgage required monthly payments are required to be credited as a payment on the principal amount of the mortgage loan amount. The annual refundable tax credit is allowed up to $1,000 per year and can be claimed for up to 10 taxable years. This bill is modeled on federal legislation referred to as the Building Equity for the American Middle-Class Act (BEAM Act) that will encourage families to build equity in their home, pay down their home mortgage more quickly, thus creating more wealth while securing the American dream of homeownership. This bill will provide a gross income tax break that rewards middle class families that chose to more quickly pay down the principal amounts of their home mortgages.
Mortgages eligible for this tax credit are purchase money mortgages or refinanced purchase money mortgages that must: (1) be for a primary residence, (2) be for a term between 15 and 30 years, and (3) require payments that are each the same amount and made in equal intervals during the term of the mortgage. The $1,000 limit on the amount of the credit phases down for single taxpayers who have taxable income between $125,000 and $135,000 and for married individuals filing jointly who have taxable income between $250,000 and $270,000. No credit is allowed for single taxpayers with taxable income over $135,000 and for married individuals filing jointly with taxable income over $270,000. Married individuals must file a joint return to claim the credit.