CHICAGO – Kent Webb plans to write off part of the interest he pays to finance what he considers his second home, a luxury fishing boat named the Moonlighter.
Calling such tax breaks loopholes for the wealthy, congressional Democrats have other ideas.
They want to eliminate the 73-year-old North Carolina physician’s deduction as part of broader tax code revisions this year, potentially the biggest such revamp since 1986 and one in which lawmakers have pledged to scrutinize every tax break.
The second-home mortgage deduction, which also benefits owners of cabins and recreational vehicles, is the boating industry’s biggest tax break and applies to vessels ranging from tiny sailboats to multimillion-dollar yachts.
Besides having at least a temporary toilet and camp stove, the only other IRS qualifying requirement is that taxpayers spend at least 14 nights a year in their second home if they also sometimes rent it out to others.
It has been a significant factor in my decision-making, said Webb, whose 60-foot yacht was listed for $2.6 million when it was for sale in 2013. It is so unfair to target people who want to use their boat as a second home.
With annual sales of more than $35 billion, U.S. boat manufacturers are gearing up to protect the break, leveraging campaign contributions and drafting form letters for boaters to send to lawmakers.
The Ending Subsidies for Yachts Act, barring the deduction for new mortgages on boats, is pushed by two Democrats in the Republican-controlled House, Reps. Mike Quigley of Illinois and Tim Walz of Minnesota.
They highlight estimates from the bipartisan Joint Committee on Taxation that foresee added tax revenue of more than $150 million over 10 years, a number that would grow as the deduction is phased out.
The interest deduction for second homes, with an estimated cost of $8 billion a year, is part of the broader mortgage interest deduction, the future of which is up for debate.
Taxpayers can deduct interest on up to a total of $1.1 million in mortgages on two homes: a main home where they live most of the time and a second home.
If we need revenue and we need to make cuts, I have a hard time putting second homes as a priority, Quigley said.
He said it verges on the absurd that boats have to be subsidized at the expense of other things such as food stamps and funding for more police and the military.
An industry letter drafted for boat owners to send to members of Congress says the proposal is wrong-headed and would accomplish nothing except putting American boat builders out of work.
After bottoming out in 2010, the boating industry is recovering. Purchases of powerboats – which include yachts, pontoons and fishing vessels – rose 13.8 percent during the third quarter of 2013 compared with the same period a year earlier, according to figures from Statistical Surveys Inc., a research company in Grand Rapids, Mich.
Boating industry advocates say an elimination of the deduction would hurt sales. They point to the industry’s downturn that followed a 10 percent excise tax on boats priced above $100,000 that was started in 1991 and later repealed in 1993.
It could be extremely damaging, said Chris Berkeley, a loan officer with Intercoastal Financial Group in Fort Pierce, Fla.
Nicole Vasilaros, director of regulatory and legal affairs for the National Marine Manufacturers Association in Chicago, said the deduction is mostly used by middle-class boaters, because the wealthy already tend to have multiple homes on land.
The average boat loan is for $49,000, and more than three-quarters of owners have household incomes of less than $100,000, she said. The industry estimates that about 5 percent of the 12 million boats registered in the U.S. qualify for the deduction.
In Webb’s case, the physician said that although he’s used the deduction on previous vessels, he doesn’t on his current one because his primary home mortgage already exceeds the $1.1 million limit. He plans to get a smaller home, then use the tax break for his boat.