Tax deduction for yachts faces scuttle bid

Sunday, January 26, 2014

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.

Congressional Democrats have other ideas.

They want to eliminate the 73-year-old North Carolina physician’s deduction as part of proposed tax-code revisions this year.

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 Internal Revenue Service 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.”

Boat manufacturers are gearing up to protect the tax provision, making campaign contributions and drafting form letters for boaters to send to lawmakers. The industry has more than $35 billion in annual U.S. sales of products and services, according to the Chicago-based National Marine Manufacturers Association.

The Ending Subsidies for Yachts Act, which bars the deduction for new mortgages on boats, is pushed by two Democrats in the Republican led House, Reps. Mike Quigley of Illinois and Tim Walz of Minnesota. They highlight estimates from the bipartisan Joint Committee on Taxation that suggest $150 million more in federal revenue over 10 years, a number that would grow as the deduction is phased out.

The interest deduction for second homes, which reduces federal revenue by an estimated $8 billion a year, is part of the broader mortgage interest deduction, the future of which is up for debate. The break for boats is a tiny proportion of the second-home total.

Taxpayers can deduct interest on up to $1.1 million in mortgages on two homes: a “main home” where they live most of the time and a second home.

“I’m not sympathetic for a second-home deduction used largely as leisure,” Quigley said.

Quigley 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.

“It’s been spun as a deduction that’s taken by wealthy people,” said Nicole Vasilaros, director of regulatory and legal affairs for the National Marine Manufacturers Association. “That’s a political tactic.”

An industry letter drafted for boat owners to send to lawmakers says the proposal is “wrong-headed and would accomplish nothing except putting American boat builders out of work at a time when the industry is still on its knees and not recovered from the worst downturn since the Great Depression.”

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.

Lake Forest, Ill.-based Brunswick Corp., the leading U.S. boat manufacturer, saw its share price increase 58.3 percent in 2013, compared with a gain of 29.6 percent for the Standard & Poor’s 500 Index.

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 repealed in 1993.

Business, Pages 66 on 01/26/2014