Lawmakers Balk at Plan to Nix Vacation-Home Tax Break

Members in districts that attract holiday-goers worry about the impact of the proposal.

An oceanfront home for sale at $4.38 million in Kailua, Hawaii in 2013
AP Photo/Audrey McAvoy
Casey Wooten
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Casey Wooten
Nov. 5, 2017, 8 p.m.

The GOP tax-overhaul bill released last Thursday has shaken up a lot of business constituencies, and none more so than real estate.

The House bill would halve the mortgage-interest deduction, cap the deduction on property taxes, and eliminate the deduction for home-equity-loan interest. Though the bill was largely popular with congressional Republicans, one particular provision has left members representing districts popular with holiday-goers concerned, albeit not ready to scuttle the broader bill over the issue.

As part of the bill, homeowners would lose the ability to deduct mortgage interest paid on second homes, commonly used for vacations.

Rep. Mark Meadows, chairman of the conservative House Freedom Caucus, said the change was a problem for some of his constituents.

“It is a big part of the economy in my district, and we’re evaluating that particular aspect. And yes, that’s a big deal, a substantial deal, because we’re a second-home market,” Meadows said.

Meadows added that his Freedom Caucus put a red line on a few items in the bill, and this provision wasn’t one of them. Still, he remains concerned.

“I know there’s going to be winners and losers, but I’ve got to see how it affects my district,” he said.

Meadows’s North Carolina district includes Asheville and the Nantahala National Forest, part of the Blue Ridge mountain range, a top region for vacation homes.

The provision could also hit major tourism states like Florida and Maine. Sen. Susan Collins of Maine said she would have to examine the bill more closely before staking a position on the vacation-home issue.

Representatives of the real-estate industry have broadly criticized the House tax bill, though most haven’t mentioned the vacation-home provision.

“The bill eviscerates existing housing tax benefits by drastically reducing the number of homeowners who can take advantage of mortgage interest and property-tax incentives,” Granger MacDonald, chairman of the National Association of Home Builders, said in a statement last week.

Vacation-home sales were down in 2016, dropping 22 percent compared to the previous year and the lowest since 2013, according to an April survey by the National Association of Realtors. That’s not necessarily because of decreased demand, but rather limited supply and higher prices, the report said. The median price of a second home in 2016 was $200,000.

Protecting tax breaks for vacation homes doesn’t carry the same political momentum as, say, the weeks-long fight over eliminating the state and local tax deduction. But Rep. Tom MacArthur of New Jersey, who has played a key role in the fight against that proposal, said he had issues with repealing the deduction for vacation homes as well.

“It is a problem for me,” MacArthur told reporters Thursday. “We have county clerks that have data, and we are assembling the information so that I can see exactly what the impact is on my state.”

MacArthur said he wasn’t drawing any lines in the sand on the vacation-home issue, but he stressed that the provision affected the seaside area of his district in an outsized way and needed to be improved. MacArthur’s district, bordering the Atlantic shoreline, is a popular destination for East Coast beachgoers.

One potential avenue for change will come this week as the House Ways and Means Committee marks up the tax bill, a process that could take up to four days. Still, as of Friday no committee members had announced plans to introduce an amendment changing the provision.

A far more likely target is the tax bill’s proposal to halve the mortgage-interest-deduction cap for primary residences from $1 million to $500,000.

If the vacation-home provision makes its way out of committee, there’s not much chance for a change in the full House, as there are likely to be no floor amendments when it comes up for a vote in the chamber. Lawmakers and real-estate groups concerned about the provision would have to turn to the Senate version of the bill to change the final product.

MacArthur, who doesn’t sit on the Ways and Means Committee, has been at the forefront of the state- and local-deduction fight. After weeks of talks, he and other GOP lawmakers from high-tax states like New York and New Jersey got a concession just as tax writers finalized the bill. The measure only eliminates the deduction for state income tax and caps the deduction for property tax at $10,000.

That was enough for some lawmakers, but Reps. Peter King and Lee Zeldin of New York and Frank LoBiondo of New Jersey said they still couldn’t back the deal.

MacArthur is continuing to press on that issue, saying Thursday that he wants the raise the cap to $12,500.

“I want to get to yes,” he said of the broader tax bill. “ I want to see us do tax reform. It has to be right, though.”

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