House and Senate Pass Tax Reform Bill

Dec 19, 2017 RV Industry Association Staff

The House and Senate gave final approval to a tax reform bill which will benefit the RV industry and further the industry’s current period of historic growth. The final version of the bill will:

Cut the top corporate tax rate to 21 percent beginning with the 2018 tax year;
Allow all floor plan financing interest charges on motorhomes to continue to be a deductible expense (floor plan interest on towables will be subject to a 30 percent limitation on interest expenses based on earnings before interest and taxes);
Lower individual tax bills for 95 percent of all filers, leaving more money in taxpayers’ hands; and
Lower the tax rates to 20 percent for qualified business income of certain small businesses that pass on profits to owners and are taxed at individual tax rates.

Of critical interest to the RV industry was the treatment of the mortgage interest deduction. The House bill would have capped the amount of mortgage at $500,000 and only allowed a deduction for purchase of a primary residence, while the Senate bill would have maintained current law of up to $1 million for first and second homes. RVIA contacted all House and Senate conferees to educate them on specific provisions of the bills of concern to the RV industry. The compromise reached by the conference committee allows deduction of interest on mortgages up to $750,000, for purchases of first and second homes, which can include RVs.

The glitch in the floor plan interest financing deductibility was partly a result of the speed by which the bill was put together. The conferees modified the definition of motor vehicle under the floor plan indebtedness provisions by deleting the current specific references to “an automobile, a truck, a recreational vehicle, and a motorcycle” and substituting the phrase, “any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road,” without realizing that this would have the effect of removing travel trailers from the definition. RVIA will work with the House Ways and Means Committee and the Senate Finance Committee to include a change to the definition in a technical corrections bill which will likely be needed next year as other oversights and unintended consequences become known.

The legislation will now be sent to President Trump for his signature, which is expected to happen before Christmas. See the chart below for a comparison of key provisions in the final compromise bill passed today and the previous House and Senate bills

Category	Previous Law	New Law	House Bill	Senate Bill
Corporate taxes	Top rate of 35%; pass-through entities taxed at individual tax rate of owner, which can be as high as 39.6%	Top rate of 21% for corporations starting in 2018 and 20% for "qualified business income" of certain small business that pass on profits to owners and are taxed at individual tax rates	Top rate of 20% for corporations and 25% for small businesses that pass on profits to owners and are taxed at individual tax rates	Top rate of 20% for corporations starting in 2019; allows small business owners to deduct some earnings, pay personal tax rate on the remainder; small business provision sunsets after 2025
Income taxes	Seven brackets: 10%, 15%, 25%, 28%, 33%, 35%, 39.6%	Seven brackets: 10%, 12%, 22%, 24%, 32%, 35%, 37%; sunsets after 2025	Four brackets: 12%, 25%, 35%, 39.6%	Seven brackets: 10%, 12%, 22%, 24% , 32%, 35%, 38.5%; sunsets after 2025
Business Interest Deduction	Allows businesses to deduct interest paid	Caps interest expenses at 30% of EBITDA beginning in 2022 (30% of EBIT 2018-2021); allows full deduction of all floor plan financing interest expenses for motorhomes (travel trailer floor plan financing expenses would be subject to the cap; RVIA will work to correct this in 2018)	Caps deduction at 30% of EBITDA; amended in mark-up to remove floorplan financing from this provision	Limits the deduction for net interest expense to 30 percent of adjusted taxable income; amended to allow all floor plan interest expenses to be deducted
Affordable Care Act individual mandate	IRS Code requires persons to be covered by health insurance or pay a tax	Repeals individual mandate, ending tax penalties for failing to have health insurance.	Makes no changes to individual mandate.	Repeals individual mandate, ending tax penalties for failing to have health insurance.
Standard Deduction	$6,350 for singles, $12,700 for married couples	Increases standard deduction to $12,000 for individuals, $24,000 for married couples; sunsets after 2025	Increases standard deduction to $12, 000 for individuals, $24,000 for married couples	Increases standard deduction to $12, 000 for individuals, $24,000 for married couples; sunsets after 2025
Alternative Minimum Tax (AMT)	Limits certain tax benefits for higher-income earners	Eliminates corporate AMT; retains individual AMT but increases thresholds and phase-outs	Eliminates AMT	Reduces number of people required to pay AMT
Child tax credit	Provides $1,000 tax credit for families making less than $110,000	Increases credit to $2,000 and adds $500 credit per adult in a family (but eliminates dependent deduction); sunsets after 2025	Increases credit temporarily to $1,600 per child, extends credit to those earning up to $230,000; adds $300 credit per adult in a family; expires in 2023	Increases credit to $2,000 per child for households with income less than $500,000; sunsets after 2025
Estate Tax	Taxes estate property valued at more than $5.5 million, $11 million if passed to a surviving spouse	Increases exemption to $10 million ($20 million for a surviving spouse); indexed for inflation; expires in 2025	Increases exemption to $11 million ($22 million for a surviving spouse), repeals tax entirely after six years	Increases exemption to $11 million ($22 million for a surviving spouse); sunsets after 2027
Mortgage interest deduction	Allows deduction of interest on first $1 million of a mortgage on a primary and/or one other residence	Allows mortgage interest deduction on loans totaling up to $750,000 for primary residence and second homes, including RVs; repeals deduction of home equity loan interest	Limits deduction for new mortgages to the first $500,000 of the loan and restricts the deduction to only interest on a loan for a primary residence	Retains deduction of interest on first $1 million of mortgage debt and allows the deduction for loans on a primary and one other residence; repeals deduction of home equity loan interest
State/local and property income tax deductions	Allows taxes paid to states and property taxes to be deducted from federal taxes	Allows no more than $10,000 in total of state and local tax deductions (real estate, income, personal property and sales)	Eliminates deductions for state and local taxes; caps at $10,000 deduction for property taxes	Eliminates deductions for state and local taxes; caps at $10,000 deduction for property taxes
Other deductions	Various deductions and provisions allowing taxpayers to reduce tax burden	Retains (and increases for two years) medical expense deduction, retains and broadens deduction for charitable contributions, ends deductions for moving and tax preparation	Repeals deductions for medical expenses, tax preparation, personal casualty losses, limits deductions for charitable contributions	Retains medical expense deduction, ends deductions for moving and tax preparation.

House and Senate Pass Tax Reform Bill

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