New Jersey Home Deductions:
What NJ Homeowners Can Claim
Owning a home in New Jersey is expensive — but it also creates some of the most valuable tax deductions available to any U.S. taxpayer. This guide covers every home-related deduction for NJ residents, what you can claim on your federal return versus your NJ-1040, and how programs like ANCHOR factor in.
$10K Federal SALT Cap
NJ Property Tax Deduction up to $15K
ANCHOR Benefit
No NJ Mortgage Interest Deduction
Home Office Deduction
Property Taxes — The Big One for NJ Homeowners
New Jersey has the highest average property taxes in the United States. With average annual bills exceeding $9,400 and many Bergen, Morris, and Essex County homeowners paying $15,000–$25,000 or more, the property tax deduction is often the largest home-related deduction available.
On your federal return (Schedule A): Property taxes are deductible as part of the SALT (State and Local Tax) deduction. The SALT deduction is capped at $10,000 per household per year — meaning your NJ state income taxes and property taxes combined cannot exceed $10,000 on your federal return. For most NJ homeowners, property taxes alone hit that cap.
On your NJ-1040 (Schedule A): New Jersey allows a separate deduction of up to $15,000 in property taxes paid on your principal NJ residence. This is independent of the federal SALT cap and can be taken in addition to other NJ Schedule A deductions. It’s one of the most valuable NJ-specific deductions available.
New Jersey’s ANCHOR (Affordable New Jersey Communities for Homeowners and Renters) program provides direct property tax relief payments — separate from the deduction. The amounts below are approximate based on recent program years:
ANCHOR payments are generally not taxable on your federal or NJ return. They do not reduce your property tax deduction.
Mortgage Interest — Federal Only
Mortgage interest is deductible on your federal Schedule A for loans up to $750,000 (for loans originated after December 15, 2017). This is one of the largest federal deductions for NJ homeowners given the high home prices and large loan balances in the state.
Important NJ difference: New Jersey does not allow a mortgage interest deduction on the NJ-1040. The federal benefit is significant; the NJ state benefit does not exist. This is one of the most commonly misunderstood aspects of NJ taxes for first-time NJ homeowners.
Home Office Deduction — Especially Relevant in NJ
With a large percentage of NJ residents working remotely — especially commuters who used to travel to New York City — the home office deduction is increasingly valuable. The deduction is available to self-employed individuals and small business owners only. W-2 employees cannot take a federal home office deduction under current law.
New Jersey follows the same home office rules as federal. You can use the simplified method ($5 per square foot, up to 300 sq ft = max $1,500) or the actual expense method, which calculates your home’s business-use percentage and applies it to mortgage interest, rent, utilities, insurance, and repairs.
Given NJ’s high housing costs, the actual expense method often produces a larger deduction — but requires more recordkeeping. Use our home office calculator to see which method wins for your situation.
Other Home Deductions for NJ Residents
Interest on home equity loans and HELOCs is deductible on your federal return only if the funds were used to buy, build, or substantially improve the home securing the loan. If you used HELOC funds to remodel your kitchen, that interest is deductible. If you used it to pay off credit cards, it is not. NJ does not allow this deduction on the state return.
NJ renters may be eligible for a property tax credit equal to 18% of rent paid during the year, up to a maximum credit of $50. This is not a full deduction but rather a credit against your NJ tax liability. To qualify, your principal residence must be in New Jersey and you must have paid rent for the entire year. The credit is taken on the NJ-1040.
New Jersey homeowners who install solar panels, new windows, insulation, heat pumps, or EV chargers may qualify for the federal Residential Clean Energy Credit (30% of solar costs) and the Energy Efficient Home Improvement Credit (up to $3,200/year for qualifying improvements). These are federal credits — not deductions — meaning they reduce your tax bill dollar-for-dollar. NJ also has its own solar incentive programs through the state’s Clean Energy Program.