Attention in Washington, DC this week has shifted almost completely to tax reform, following the introduction last week of the House Ways and Means Committee’s proposal. The Committee has spent this week considering amendments to its bill and is expected to report out a final bill on Thursday.
The bill would permanently reduce the top rate for corporations from 35 to 20 percent, a move that would be excellent for our member companies while lowering the top rate for “pass-through” companies to 25 percent. Pass-through businesses — including sole proprietorships, S corporations, and partnerships — are those who pay taxes through the individual income tax code rather than through the corporate code and make up the vast majority of businesses and more than 60 percent of net business income in America. The bill would also allow for the immediate expensing of capital investments.
To make up some of the revenue lost to the lower rates, the legislation would limit some deductions that businesses can now take but with the reduction of the overall corporate tax, the impact felt by manufacturers would not be significant. For example, the proposed plan would cap corporate interest deductions at 30 percent of earnings before interest, taxes, depreciation and amortization, which could impact RV dealers’ ability to deduct floorplan interest.
The bill has some provisions that could have a negative impact on the RV industry, such as the proposal to cap deductions of mortgage interest to only $500,000 of loans (current law allows up to $1 million in loans), while limiting the deduction to only a taxpayers primary residence. Current IRS regulations allow deductions on a primary and one secondary residence, which can include an RV. The bill would also cap state and local property tax deductions at $10,000.
On the other side of Capitol Hill, the Senate Finance Committee is putting finishing touches on its version of tax reform legislation, which is expected to be released later this week. It will likely vary greatly from the House version, as it is expected that the Senate bill will make no changes to the current mortgage interest deduction. It would also completely eliminate, rather than limit, the deduction of state and local taxes on federal tax returns; limit the number of people who pay the estate tax, instead of eliminating it entirely; and include more tax brackets than the four currently in the House bill.
RVIA has been in contact with members of both the Ways and Means Committee and the Finance Committee to urge that the mortgage interest deduction continue to be available on second homes, including RVs.