Your NJ Home Could Soon Be Worth Much Less: Here's Why

President Donald Trump's tax plan will soon hit New Jersey homeowners hard - in ways they may not have expected, according to a new report from Moody's.

In a report released this week, Moody’s Analytics estimated that New Jersey's average home values are likely to decline 7.5 percent this year as a result of the federal tax reform, easily surpassing neighboring states such as New York (3.6 percent) and Connecticut (5.6 percent).

The tax reform plan approved by Congress last month will leave "many New Jersey taxpayers with less disposable income and wealth," and less money for a house. That problem will ultimately cause housing prices to drop.

The investor and financial services agency blames changes to the federal property tax deduction for state and local taxes that saves New Jerseyans thousands of dollars a year.

The plan eliminated personal exemptions to help pay for the tax cut that some estimate could cost more than $1 trillion. The legislation also eliminated deductions for state income or sales taxes and capped the deduction for property taxes at $10,000.

Read more: Trump's Tax Plan: How Much Each New Jersey Town Could Pay

The tax reform plan could ultimately impact the state's financial health, according the report. The state Legislature has previously considered raising the income tax rate on the highest earners, "but this option may be less appealing now because the $10,000 cap on state and local taxes deducted from federally taxable income makes such a move more costly to taxpayers," according to Moody's.

"These revenue pressures will challenge the state’s ability to balance mounting budget demands, particularly new pension contributions in fiscal 2019," according to the report.

The report suggests Gov. Phil Murphy, who was sworn in earlier this month, faces a lot of pressure because of the state's challenging financial picture.

The state’s revenue gap has persisted because of tax shortfalls that are unlikely to improve over the next six months of the fiscal year, according to the report. Sales taxes, in particular, have only grown 1.6 percent over the past year, compared with a budgeted growth rate of 4.4, according to the report.

Additionally, sales tax growth will remain low because of the recent reduction in the sales tax rate to 6.625 from 6.875 percent, resulting in lost revenue of $400 million in fiscal 2018 and $500 million in fiscal 2019, according to the report.

"The state’s ability to increase its pension contributions on schedule is critical to reversing its pension cash flow deficit and maintaining stable credit quality," according to the report.

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