Personal Finance

One surprising way to beat the SALT deduction cap: Move to a nearby town

Key Points
  • A new cap on the deduction for state and local taxes has prompted some New Jersey residents to shop around for lower property taxes.
  • The surprise for these surburban New York City residents: Moving to one nearby town enabled them to substantially reduce their bills.
  • More homebuyers will likely put lower taxes on the top of their priority list once the full effects of new federal tax rules become clear.
Downtown Saddle River, N.J.

A few years ago Dawn Donaghy and her husband, Raymond, made a decision that many residents in high-tax states make. They wanted to move.

The couple, then residents of Old Tappan, New Jersey, a town less than 30 miles outside of New York City, loved where they lived.

But Raymond's three children were now adults, and no longer needed the school system. And the taxes that came with that high-quality public school education were high.

The couple considered moving as far as Connecticut, so they were surprised at what they found in their own backyard.

In June 2017, the Donaghys moved to a neighboring town, Saddle River, just about eight miles away.

"We started looking and we could not believe some of the homes that we saw and the tax bracket," Dawn said. "We just looked at each other in amazement. We're going to have more property, a larger home and one of them was half the taxes."

Dawn Donaghy and her husband, Raymond, pictured at their wedding at their Saddle River, N.J., home, where they were married by Mayor Al Kurpis.

While the couple did not end up choosing that house, they still were able to bring down their tax bill substantially — by about $10,000.

The property taxes they were paying in Old Tappan were around $37,000 at their highest, according to Dawn. Today, they're paying around $27,000.

More residents of high-tax states are reportedly looking to move in light of changes ushered in by the Tax Cuts and Jobs Act. Notably, that includes a lower cap — $10,000 — for deductions for state and local taxes.

We started looking and we could not believe some of the homes that we saw and the tax bracket. We just looked at each other in amazement
Dawn Donaghy
Saddle River, N.J., resident

And while much has been made of a migration from high-tax to low-tax states, anecdotal evidence points to residents finding wiggle room in the areas where they currently live. And this search for backyard bargains could spread to other high-tax states.

Enter Saddle River, a borough in Bergen County, that was first put on the national map when former President Richard M. Nixon moved there in 1981.

The tony town counts high profile celebrities and business executives among its residents. Even so, Saddle River, which is about five square miles, has mostly stayed under the radar.

"We've been pretty much a sleeper town as far as people being all that aware of us," said real estate agent Vicki Gaily, founder of Special Properties Group, a division of Brook Hollow Group, which specializes in luxury properties in Northwest Bergen County.

Richard Nixon at his Saddle River, New Jersey, home.
Wally McNamee | Corbis Historical | Getty Images

At first blush, a drive through the town feels more like a bucolic suburban village than a celebrity enclave. The borough's center includes just a smattering of local businesses, none of which are chain stores.

Yet beyond those main streets are large palatial homes on lots with minimum two-acre zoning. Many of the houses boast spectacular features.

That can range from home theaters to wine cellars to horse stables, according to Gaily.

"In a typical town, they may say, 'I want four bedrooms and three-and-a-half baths,'" she said. "It goes a lot further than that in what we handle in Saddle River."

To be sure, you have to have a certain amount of wealth to live in the borough.

The average residential property value was $1.7 million in 2017, according to the most recent data released by the state. Perhaps surprisingly, the average total property taxes, not including credits and deductions, was $17,160. That is lower in comparison to the property value to property tax ratio of most surrounding towns. That is because New Jersey towns mostly fund their schools through property taxes.

Average residential property taxes in select Bergen County, N.J., towns

MunicipalityAverage residential property value Average total property taxes (not including credits and deductions)
Old Tappan822,86916,493
Saddle River1,695,17217,160
Upper Saddle River773,88918,119
Washington Township463,52010,775
Woodcliff Lake739,33315,466

Saddle River's municipal tax rate has gone down six years in a row, said Al Kurpis, mayor of Saddle River.

Even still, residents have access to top-quality police force and public schools, according to Kurpis. The borough, which has money to spare in its surplus account, has no plans to raise taxes.

"Maintaining a low tax rate is in our best interest to attract people to our community," Kurpis said. "But even if they went up a little bit, we're still lower than anyone else."

Even as individual taxpayers have yet to see what the full effects the Tax Cuts and Jobs Act will have on their bottom lines come April, they are starting to keep those changes top of mind when shopping for new homes.

That goes for Dr. Hongsok Hwang, a dentist who had lived with his wife in Washington Township, a nearby Bergen County town, for the past 15 years.

Once the prospect of the couple's aging parents coming to live with them came up, they knew they needed a bigger home.

Hwang also knew the new maximum SALT deduction would kick in starting this year, something he focused on as they were shopping for a home.

Dr. Hongsok Hwang, a dentist, pictured on the Saddle River, N.J., property he moved to last year.

The couple moved into their new home in Saddle River in September. And while Hwang has yet to see how his tax return shakes out this year, he's already been pleased with his lower property tax bill.

Today, Hwang is paying less than $12,000 a year for a two-acre lot. In Washington Township, he was paying closer to $20,000 for about a quarter acre of land.

"We love it. It feels like we have a lot more privacy here," Hwang said.

What's more, the couple, who don't have children, aren't saddled with the high taxes that neighboring towns require.

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"It didn't make any sense for us to look at these towns where most of the property tax is going to the school system," Hwang said. "That made even more sense for us to come to Saddle River."

Saddle River has its own public school that serves kindergarten through fifth grade. After that, residents can send their children to a nearby public middle school. They also have a choice between two area public high schools.

Saddle River has about 80 properties on the market, including land listings, which is typical for this time of year, according to Gaily.

Saddle River Inn, Saddle River, N.J.

As the new tax law takes full effect, more prospective buyers will probably take the resulting tax costs into account, she said.

"I think it's going to be a higher level of priority," Gaily said. "They're going to be thinking long and hard about how it's going to affect their finances."

The disparity in tax bills was a topic of conversation at a recent party the Donaghys hosted at their house for about 55 friends from both their current and former towns.

Several of the couple's friends are actively looking to move to Saddle River after Dawn told them about their lower tax bill.

"No one wants to pay taxes unnecessarily," Dawn said.