Federal tax reform could do away with second home deductions
Similar proposal, which would harm boat owners, didn’t succeed in California legislature.
Editor’s Note (Nov. 23, 8:00 a.m.): The House of Representatives passed its version of tax reform, Nov. 17, one day after The Log’s most recent issue went to press. The Senate’s version of the bill is still being deliberated.
NATIONWIDE — California’s boaters could be on the verge of being struck by a one-two punch in these final days of 2017. Fuel prices skyrocketed a few weeks ago when the much-anticipated 12-cent gasoline tax hike went into effect. The state levy, which helped make California the most expensive place in the nation to fill up, served as the first tax blow. Uncle Sam himself might deliver the second, potentially more powerful, punch, as Congress deliberates comprehensive tax reform this month.
A proposal on the House of Representatives floor could do away with mortgage deductions on second homes – a plan similar to what was presented in front of state legislators during the most recent legislative session in Sacramento.
Boat ownership would qualify as owning a second home; eliminating interest deductions for second homes, accordingly, would directly affect boaters.
Boaters effectively dodged a bullet when Assembly Bill 71 (AB 71), the proposal which sought to do away with second home deductions, failed to muster significant support in Sacramento. Assembly Democrats proposed AB 71 as a means to raise funding for affordable housing programs, but the bill never made it to a full legislative vote and effectively died in the lower house.
Now comes the House’s tax bill, proposing to cap mortgage interest deductions at $500,000 and eliminating second home subsidies altogether.
The Senate’s tax reform bill, interestingly enough, would maintain the current tax scheme for mortgage interest deductions: $1 million cap and no restrictions on second home subsidies.
It is obviously unclear, as of now, which proposal would win the day. Of course it is just as possible the two houses of Congress come to terms on something different.
Yet the specter of boat owners losing a tax benefit remains as we head into Thanksgiving week.
Complicating matters for boaters: the House’s proposal, if approved and signed into law, would be applied nationwide, meaning they can’t threaten to leave California for another state or even blame Sacramento for being overwhelmingly Blue.
Of course there are other elements to the federal tax reform bill, such as whether to repeal the medical expense deduction and adjust the top income tax rate.
The House proposal specifically seeks to entirely do away with medical expense deductions, mostly repeal state and local tax deductions, cut the corporate tax rate to 20 percent by 2018, eliminate the double exclusion rule for estate taxes by 2024, maintain the top income tax rate at 39.6 percent and consolidate the number of tax brackets from seven to four.
Senators, meanwhile, propose to repeal state and local tax deductions entirely, maintain medical expense deductions, reduce the corporate tax rate to 20 percent by 2019, adjust tax rates without consolidating brackets and cut the top income tax rate to 38.5 percent.
Both proposals would maintain adoption tax credits and adjust the standard deduction to $12,000 for individuals and $24,000 for couples.
Naturally a lot can and will happen in the coming weeks, as the House and Senate proposals are far enough apart to require heavy deliberation.
For boaters the debate comes down to whether the status quo remains on second home deductions or the House has its way and eliminates the subsidy altogether.
Advocacy groups such as Recreational Boaters of California and California Sportfishing League both argued against AB 71. Perhaps similar opposition could be lodged against the House’s proposal?
No one knows when the proposed tax reform would officially be up for a vote, but the process could play out before the holidays – which is only a few weeks away. Reach out to your local representative and let them know whether you support or oppose the proposal to eliminate second home deductions.