Gov. Malloy proposes tax deduction workaround

Posted: Updated:

Gov. Dannel Malloy has proposed legislation to counter the recent federal tax overhaul and allow taxpayers to continue to write off the full amount of their local property taxes.

The plan from Gov. Malloy aims to help Connecticut homeowners who face higher federal tax bills because the new tax law caps state and local tax deductions at $10,000 a year.

Gov. Malloy estimates Connecticut residents will lose $10 billion in federal tax deductions under the recent tax law.

The idea is people would receive their local tax bill and make a donation to their municipality's charity in that amount.

Those charities would use the donations to fund town or city services usually paid for by tax dollars and taxpayers would itemize their returns and claim the deduction.

The result would be less money being paid to Washington.

Despite the support of several municipal leaders in Fairfield County, many are questioning whether the IRS will allow it.

This is an idea Fairfield First Selectman Mike Tetreau says he looked into as soon as the federal tax law passed at the end of last year.

He says he is all for it, but says there are a number of complications.

One of the complications being the state has to pass legislation allowing municipalities to set up charities first so he's hoping lawmakers follow the governor's lead.

Another complication, he says, is the definition of a charity and whether the IRS will allow this.

"If you're basically paying for town services, the question arises, are you getting value for 100 percent of your donation to this charity because you're paying for the town services with it, so the question is how is the IRS going to treat this," says Tetreau.

It's not clear when the IRS will make that determination.

Tetreau says until it does, it's important for towns like Fairfield to explore it and take every step to help taxpayers.

"There's certainly some opinions out there that say the IRS will not allow this to take place. I think it's important that until they do that, that we take every step we can to make sure we protect our taxpayers so we're going to do that," says Tetreau.

Gov. Malloy also joined the governors of New Jersey and New York last month announcing they would sue to overturn the new tax law.

They say it intentionally discriminates against Democratic-leaning states.

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