No tax deduction for boat interest

[DavidM]

A somewhat obscure "feature" of the Republican tax plan was discussed in a WAPO article today: The mortgage interest deduction on second homes (including boats) is being eliminated.

Some of us finance the purchase of our boat and most qualify as "second homes" which under current law allows interest to be deductible. The current tax plan eliminates that deduction on purchases made after November 2, 2017.

For those in the 25% tax bracket that would effectively increase your payment about 10%.

David

 

[Rogerh]

I was concerned about that too since I have the second home deduction and significant medical deductions. So I did my 2016 taxes based on the proposed law as it stands. Surprisingly my taxes went down by about 1200 dollars. I was glad to see that, and I was surprised that it worked that way. In my case it worked out in my favor.

 

[Shrew]

If I read and understand the changes correctly (Feel free to correct me if you have contrary facts)... The second home deduction will only apply to NEW loans. Those who have been taking the deduction will continue to do so on existing loans.

I also don't believe this includes a second-mortgage on an existing property. The wording seems to indicate "Second-Home". This stands to impact sales of vacation property in the future. If so, we'll see a lot of boats and RV's getting buried in home equity loans and LoC's.

 

[Comodave]

I don't think anyone really knows what will happen. I do know that since I am not a billionaire, I will end up being screwed...

 

[markpierce]

Itemized deductions, in total, are worthwhile only to the extent they exceed the standard deduction. With the proposed rise in standard deduction and the elimination of state/local tax deductions, the value of any home-mortgage deduction is reduced or eliminated.

 

[kthoennes]

I ran some calculations too and came out way ahead overall because we slip under a revised bracket boundary. Even so though, seems to me unless you've financed a lot at a relatively high rate for a long term, that deduction really isn't worth that much. The final value of that deduction for us wouldn't even fill half the 300 gallon gas tank.

And although we're certainly not rolling in money, and I have no love of paying taxes, I'm not sure boat owners will elicit much sympathy on this topic. But either way, and I don't mean to turn this into a political topic, who knows what will ultimately pass, if anything.

 

[Benthic2]

I don't think its very likely to pass in its current form. The plan benefits the wealthy, so the Dems won't like it, and the Republicans have been complaining about the deficit so much that they can't vote for a plan that will increase it so much. There's no way this ever even gets off the ground. Anyone who votes for it will lose their political base and effectively end their political career.

 

[Diane and Chris Fawcett]

Any info on how this will affect full-time live-aboards who do not maintain a land-based home? Considering this will be the one and only residence.

 

[BandB]

No one in the world has any idea what we'll end up with tax wise. Prediction. Something will pass by mid 2018, retroactive to the start of the year, and then the tax tables used the first half of the year will have been wrong, new tables quickly created. No one will have all the information, except the very few to have read the entire bill, so advice and opinions will vary widely. It will be somewhat like something someone has mentioned along the way. Some people will pay more taxes and be upset. Some will pay less. No one will be happy with it. States will probably sue.

Oh, and one more thing. It will be more complicated, not simpler, so tax accountants will win.

The major things will be well publicized but other things not at all and snuck through. The devil is in the details no one will have for a long time.

Tax laws are far more complicated than those unfamiliar with them realize. Every seemingly minor change impacts some group of people tremendously.

I think the most difficult thing is decisions one individual, company, or governmental unit has made based on one set of tax laws and they're changed. Financing vacation home is an example. Most figured the cost based on current laws. Everyone who has ever purchased municipal bonds have done so based on that interest being tax free. Governments have planned projects based on the ability to sell tax free bonds. People have set their withholding from pay based on certain tables.

At this point we've seen nothing even close to what will end up. Just glimpses and pieces of "might's".

 

[OldDan1943]

If it is only for NEW loans, I am safe.
If it is for existing loans, hand me the food grade silicon lubricate.

 

[DavidM]

Any info on how this will affect full-time live-aboards who do not maintain a land-based home? Considering this will be the one and only residence.

If your boat is your primary residence, then as I understand it, mortgage interest will be deductible up to a $500,000 loan.

David

 

[Cuttyhunk47]

Who knew tax breaks could be so complicated?

 

[caltexflanc]

If your boat is your primary residence, then as I understand it, mortgage interest will be deductible up to a $500,000 loan.

David

Yes, we financed a small part of our boat and listed it as our primary residence, which it was. But others have made the very valid point that this "reform" is far from finalized yet, if ever. My personal hope is that at least the corporate system goes through pretty much as proposed, it can be a tremendous growth driver over the long run as long as the savings doesn't go into executive pay as a windfall or is merely paid out in dividends. Some link to capital investment in US assets and new US jobs could help control that.

It is ironic that the states most affected by the elimination of the local tax deduction are huge revenue sources for Feds already, with taxes paid far exceeding Federal spending in those states. Helps offset the "welfare states" in the deep south, among others.

 

[kthoennes]

When I ran some calculations on the initial proposal, it seemed custom written to give us a huge tax break. No state income taxes here, low remaining mortgage, low remaining boat loan at a low rate, relatively low property taxes. Income too high to write off my wife's law school loan interest anyway. Income too high and too healthy to write off any medical expenses anyway. And just in the sweet spot for the maximum tax bracket break. Custom written for us. Therefore, it's going nowhere and if anything passes at all, it will look nothing like the initial proposal and generally make everything worse.

And there's my cheery prediction for the day.

 

[BandB]

When I ran some calculations on the initial proposal, it seemed custom written to give us a huge tax break. No state income taxes here, low remaining mortgage, low remaining boat loan at a low rate, relatively low property taxes. Income too high to write off my wife's law school loan interest anyway. Income too high and too healthy to write off any medical expenses anyway. And just in the sweet spot for the maximum tax bracket break. Custom written for us. Therefore, it's going nowhere and if anything passes at all, it will look nothing like the initial proposal and generally make everything worse.

And there's my cheery prediction for the day.

If all the suggestions went through, I'd get a huge tax reduction and I'm the last person who should be getting one. The reality is that isn't going to happen though.

As to interest on second homes, all itemized deductions have been targeted now and really for a while. They talk about this one and that one. And one person favors this and one that and there are reasons to eliminate each of them and reasons not to eliminate them. There are consequences to each. I can argue both sides to all.

2nd home arguments.

Eliminate deduction. Why should we give benefits to people wealthy enough to have two homes?

Keep deduction. It stimulates construction and purchasing and is good for the economy.

Non taxable state and local bonds

Eliminate tax exclusion. Why should we exclude income that mainly the wealthy have?

Keep deduction. Without this deduction states and local governments would have to pay much higher interest on bonds, increasing the costs of roads, schools and more. Also, the supreme court long ago ruled that the federal government can't legally tax states or their payments.This is the one the states are ready to sue over.

It's just funny to hear some being argued about. You have one that is billions of dollars, then you have them wanting to eliminate the $250 credit teachers can take for money they spend on students and the classroom.

It's going to be interesting to follow but there's nothing that's going to happen anytime soon.

 

[meridian]

If 50% don’t pay any taxes I guess the plan does favor the “rich” whatever that means..

 

[boathealer]

If all the suggestions went through, I'd get a huge tax reduction and I'm the last person who should be getting one.

[snip]

Not directed at you, but I think this is part of the problem. Who says you are the "last person who should be getting one"? What are you basing that on - the fact that the government has been wasting our money for 50+ years? ....and we're used to getting screwed?

It would be one thing if the money was being spent wisely, but.....

 

[markpierce]

Tax laws: the rich (as in those having tens of millions or billions) have no or little understanding of the tax laws as they can easily afford costly tax attorneys to do their job. Neither do most of the rest of us paying taxes. Found that doing taxes manually brings a greater understanding of the taxes rather than having a computer program or tax specialist compute the taxes.

 

[Bay Pelican]

Another factor to consider is the number of people who make a living off of preparing simple income tax returns and those who make a living advising on reducing the estate tax. Both groups are strongly against the bill as proposed as the increase in the standard deduction will shift many taxpayers into filing their own returns and and the elimination of the estate tax will eliminate a whole industry.

From what I have seen over the years neither group generates much net revenue for the federal government. To explain that many of those who will shift from itemized deductions to the higher standard deduction will not see that great of savings as they are already exceeding the current standard deduction. The increase in the actual deduction will not be large but the savings to the taxpayer will come in not having to pay to have his or her returned prepared.

Estate tax planning is a major business for lawyers and accountants with millions of customers many of whom never pay estate taxes but most of whom deduct the cost of their tax planning on their income tax returns. The loss of the estate tax collections has to be reduced by the gain resulting from the loss of the deductions for estate tax planning.

 

[DavidM]

Mark:

In general, I agree with you. But although I am no where near to be in the top 1 percenters, my taxes are full of complications. I use Turbo Tax and try to go through all of the schedules and worksheets that it generates. The printout of all of these is 1/2" thick.

Turbo Tax has definitely saved me money. How else would I know that if you are self employed you can deduct the entire cost of health insurance for you and your spouse. You can also make SEP IRA contributions up to 25% of your net business income. Those two facts alone which I would probably never have found on my own have saved me many thousands.

David

 

[OldDan1943]

Each year, I take all my receipts, in a box, to my CPA. She reviews everything, fills out the form and calls me when everything is ready. I come into town, sit down, talk with her, complain, write the checks, get up, drive back to the boat and decompress with a bottle of wine.

 

[Bacchus]

unfortunately the primary factors that will influence which proposals make it in and/or remain in have nothing to do with being logical... fair... or are in the individuals best interest. It all comes down to special interest groups that have the most $ and can lobby (buy off) the most politicians.
IMO
Housing industry...will never allow eliminating housing deductions.
Lawyers & CPAs won't allow enough simplification that most people wouldn't need their services.

Hard to justify why anyone with a yacht...luxury motorhome....1-3 vacation homes... etc.... should have a tax advantage.

 

[OldDan1943]

There is/has been that reoccurring thought and desire to eliminating the housing mortgage deduction.
One way the Feds can sneak up on this desire is by eliminating the mortgage deduction on the qualifying 'second home' which includes our boats.
I guess the thought is, if folks are rich enough to buy a 'second home', they (we) don't need the mortgage deduction on that home.
Now aren't we special.

 

[Bluefish17]

It would seem that with no interest deduction, the values of 2nd homes including boats and RVs would decrease because fewer buyers would be able to afford them. Also home equity loan interest would also no longer be deductable.
However, I think it's unlikely this bill will get through Congress.

 

[BandB]

It would seem that with no interest deduction, the values of 2nd homes including boats and RVs would decrease because fewer buyers would be able to afford them. Also home equity loan interest would also no longer be deductable.
However, I think it's unlikely this bill will get through Congress.

The market would shrink so the value would decrease. To what degree, we can't know for sure. If I was a contractor specializing in vacation homes, I'd be concerned.

If this was a company it would probably find zero base budgeting recommended. That's just starting over from the bottom. However, it's starting with today and moving gradually toward change. There are a lot of people with a lot of different targets but no clear paths on how to get where they want to go. The things that really need to be done are politically impossible.

 

[OldDan1943]

The market would shrink so the value would decrease. To what degree, we can't know for sure. If I was a contractor specializing in vacation homes, I'd be concerned.

If this was a company it would probably find zero base budgeting recommended. That's just starting over from the bottom. However, it's starting with today and moving gradually toward change. There are a lot of people with a lot of different targets but no clear paths on how to get where they want to go. The things that really need to be done are politically impossible.

Remember how Carter almost destroyed the boat building industry?

 

[ranger58sb]

If all the suggestions went through, I'd get a huge tax reduction and I'm the last person who should be getting one.

I wouldn't leap to that conclusion. If you make big bucks$$$, paying more taxes than others do means your contribution is probably higher than the cost of government goods and services. IOW, you may pay more than I do for the same "product."

An anlogy might be about buying something like a car. You and I buy the same make/model/options/etc. I pay $50K, you pay $500K. For the same car.

Might be fiscally expedient, socially popular, and politically necessary... but that's not particularly fair.

Hard to justify why anyone with a yacht...luxury motorhome....1-3 vacation homes... etc.... should have a tax advantage.

See above. For some (many?), the "tax advantage" is merely being less raped.

-Chris

 

[OldDan1943]

I wouldn't leap to that conclusion. If you make big bucks$$$, paying more taxes than others do means your contribution is probably higher than the cost of government goods and services. IOW, you may pay more than I do for the same "product."

An anlogy might be about buying something like a car. You and I buy the same make/model/options/etc. I pay $50K, you pay $500K. For the same car.

Might be fiscally expedient, socially popular, and politically necessary... but that's not particularly fair.





See above. For some (many?), the "tax advantage" is merely being less raped.

-Chris

There was a time we could write off the interest on car loans and credit cards too.

 

[ranger58sb]

There was a time we could write off the interest on car loans and credit cards too.

Yep, I remember well...

But OTOH, deleting that sort of simplified our tax returns... and the time spent filling it out...

The current "second home" deduction also has some complicated bits about how boats are treated for AMT purposes. Basicially sucks. But removing the deduction altogether would be another step toward simplification... and I sort of like that idea.

For many, I suspect grandfathering (somehow) would be a safer way forward... given that changing the rules mid-game can seriously hose many folks who did all their planning based on current rules.

-Chris

 

[OldDan1943]

Words that have no meaning the the Federal govt., 'transparency and simplified.