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Peering into the ‘fiscal cliff’ deal

Now that the media frenzy about the deal to avoid the fiscal cliff has calmed down, details of the bill are being discovered. After all, who reads a 1,800-page bill before voting for it these days.

A lot has already been written, of course, but here are a couple of interesting provisions, or lack thereof, pretty much unnoticed to date:

1) About $1.5 trillion of bank deposits have lost the unlimited government guarantee that was granted during the financial crisis to assure skittish depositors their money was still safe in banks. The fear was depositors that maintain large non-interest-bearing cash accounts would pull huge sums from the banks, resulting in smaller community banks taking a particularly hard hit. Such cash accounts are primarily used by businesses and municipalities for payroll and operating expenses.

But, continuing the unlimited FDIC guarantee didn’t make it into the cliff deal and, therefore, was allowed to expire Jan. 1. The result: now the FDIC only guarantees $250,000 in any such account. Moreover, a depositor can only have one such insured account in any one bank.

Accordingly, any marine business having such an account would be wise to use multiple accounts in different banks to be assured of the deposit insurance. There are some cash management firms already working with a network of banks to distribute $250,000 blocks, each of which are covered by the FDIC insurance. And, while one might just assume the government would step in again to rescue the banks if another crisis hits, no one can be sure.

2) There is a repeal provision buried in the cliff deal that actually involves Obamacare. Specifically, it’s the section of the Affordable Care Act pertaining to the “CLASS Act” that called for setting up a new government program, similar to FICA that employers and employees would contribute to for long-term disability insurance. “It was clearly unworkable and too expensive for small-business compliance,” says Marine Retailers Association of the Americas lobbyist Larry Innis, who has been outspoken in his calls for repeal. “It’s finally done.”

3) The second-home mortgage interest deduction is a major issue for our industry. Keeping it has been something both the MRAA and the National Marine Manufacturers Assocation have been aggressively supporting. The cliff deal language regarding itemized deductions is, at best, confusing. But, Innis reports the best information available now indicates the home and second-home mortgage interest deductions are permanently set for most taxpayers. However, certain higher income filers (individuals with AGI over $250,000 and joint filers above $300,000) will be affected by the reinstitution of certain thresholds, indexed for inflation.

Under the formula, the amount of AGI above these thresholds will be multiplied by 3 percent and that amount will then be used to reduce the total value of a filer’s itemized deductions. The total amount of reduction cannot exceed 80 percent of the filer’s itemized deductions. (Example: If a single filer’s AGI is $300,000, multiply $50,000 ($300,000-minus-$250,000) by 3 percent and reduce itemized deductions by $1,500.

Actually, these limits are not new. They were first enacted in 1990. It was called the “Pease Limitation,” after Ohio Rep. Don Pease fathered the idea. However, the “Pease Limitation” was gradually phased out as part of the 2001 Bush-era tax cuts and was completely eliminated by 2012. Obviously, it’s back, but it appears the second-home mortgage interest deduction will be around for the foreseeable future.

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