How Will the New Tax Law Affect Boat Owners?
By Peter A. Janssen
The other shoe has dropped. The House and Senate worked out their differences and passed the new tax reform package, and President Trump just signed it. Here’s what it means to boat owners:
Second-Home Deduction: The new law preserves the mortgage interest deduction on first and second homes (and boats and RVs that have the equivalent of a bedroom, bathroom and cooking facilities), but it lowers the cap from $1 million to $750,000 for new mortgages. It does not affect any existing mortgages. The preservation of this deduction is generally viewed as very good news for many boat owners. But the new law eliminates the deduction for interest on home equity loans (which previously was allowed on loans up to $100,000).
SALT, or State And Local Taxes: The new law caps the deduction for state and local income and property taxes at $10,000. This will not affect the majority of boat owners, but it is a hard hit on people living in high-tax states, including New York, New Jersey, Connecticut and California, and many who have purchased expensive homes at least partially based on their ability to deduct their state taxes from their federal tax returns.
Estate Tax: If you’re counting on a big inheritance to pay for a new boat, you’re in luck. The new law doubles the exemption, previously at $5,490,000. This is very good news for a very small group of people.
Pass-Through Businesses: Many boat builders, boat dealers and boat owners have organized their businesses as joint ventures, LLCs, S Corporations or sole proprietorships, where the profits from the business are counted in the owners’ personal tax returns. The new law gives these owners a 20 percent deduction for the first $315,000 of joint income, which is a very nice Christmas or holiday present.
So how does all this play out in the real world of cruising and boat ownership? It probably won’t make a big difference to most boat owners or prospective boat owners. As one friend of mine in the business said, most boat buyers will still think, “Hey, I want the boat and I’ll worry about the taxes next April.”