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House bill chops tax break for RVs and boats

Key Points
  • Current tax law allows boat and RV owners to deduct the interest they pay on those loans under the mortgage interest deduction for second homes.
  • The House bill, which passed last week, would eliminate the tax break on second homes.
Gary John Norman | Getty Images

Cruising the high seas or open highways could start costing taxpayers a bit more.

If a provision in the House-passed tax bill makes it into the final legislation, owners of boats and recreational vehicles who write off the interest on their loans would lose that deduction.

The Tax Cuts and Jobs Act approved by the House last week eliminates the deductibility of mortgage interest on second homes. For RVs and boats that qualify as such — those with a kitchen, bathroom and at least one bunk — owners currently can deduct the interest they pay on financing those assets.

As written, the change would be effective in 2018, although it's uncertain whether the provision will make it into any final legislation. The Senate version of the tax bill, which was approved by the Finance Committee last week, retains the current treatment of mortgage interest for both first and second homes. (See chart below for other differences between the two bills.)

Under current law, you can take a deduction for the interest you pay on up to $1 million of mortgage debt (plus $100,000 of home equity), which applies to your first and second homes. The House bill reduces that ceiling of qualifying debt to $500,000.

It's worth noting that RVs or boats used for business purposes are treated differently from a tax standpoint than those for personal use.

Unlike many real estate experts who predict a decline in vacation-home purchases if the second-home mortgage deduction disappears, the boating industry is more optimistic.

Thom Dammrich, president of the National Marine Manufacturers Association, said the overall effect of tax-reform efforts should help both the boating industry and boaters through reduced taxes.

Both the Senate and House versions reduce the corporate tax rate to 20 percent from 35 percent percent, along with making a variety of changes to individual taxes that are intended to reduce taxpayers' burden.

Bellurget Jean Louis | Getty Images

"In looking at the bigger picture, the plan's lower tax rates are more important for a boater than the mortgage interest deduction as it can provide greater savings overall," said Dammrich.

"Given the lower tax rate for Americans, including middle-class boaters — who make up approximately 72 percent of boat owners — losing the deduction is more than a fair trade for both the industry and boaters," Dammrich said.

His group defines middle-class as households with annual income below $100,000.

While some luxury yachts cost upwards of $200 million, the majority of boats are worth far less. Of the estimated 12.1 million boats registered or documented in 2015, about 95 percent of them are under 26 feet in length, according to the National Marine Manufacturers Association. Separate research from Stanford University shows the average cost range for a boat under 30 feet long is $35,000 to $60,000.

Trump: Americans will get huge tax cut for Christmas
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Meanwhile, the RV industry is a bit more concerned about the deduction disappearing.

"It's something that can help people purchase an RV, and most RV purchasers are not super-wealthy," said Kevin Broom, spokesman for the Recreation Vehicle Industry Association.

The cost of an RV ranges from about $5,000 for a towable camping trailer to $500,000 or more for deluxe motorhomes, according to 2016 data from the Commerce Department. More than 9 million households own an RV, with consumers between ages 35 and 54 now the largest group of buyers.

The mortgage interest deduction for second homes is only one of many tax breaks that could disappear as part of Republican tax-reform efforts. While Senate lawmakers are expected to continue debate on their version after the Thanksgiving holiday, differences between the House and Senate bills would need to be ironed out before legislation could be finalized.

Republican leaders have indicated they hope to get a final tax bill to President Trump for his signature in December.

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