President Obama signed the Small Business Jobs and Credit Act of 2010 into law Sept. 27, the American Horse Council (AHC) reported Sept. 28. The bill is intended to help small businesses and create new jobs. The bill continues the bigger write-off for horses and other property purchased and placed in service by a horse business that were originally included in earlier stimulus bills.
According to the AHC, the first incentive allows an owner who purchases a horse or other business property used in a horse business and places it in service in 2010 or 2011 to expense up to $500,000 of the cost. This so-called “Section 179” expensing allowance applies to horses, farm equipment, and most other depreciable property. Once total purchases of horses and other eligible property reach $2 million, the expense allowance goes down one dollar for each dollar spent over $2 million. Without the bill the expensing allowance would have been $250,000 in 2010 and gone down to $25,000 for later years.
“Let’s assume a horse business purchases $750,000 of depreciable property in 2010, including $650,000 for horses, and places it all in service. That business can write off $500,000 on its 2010 tax return and depreciate the balance,” explained AHC president Jay Hickey.
This provision will benefit any business involved in the horse industry that purchases and places depreciable property in service in 2010 or 2011, according to the AHC.
The second incentive reinstitutes the 50% first-year bonus depreciation for horses and most other depreciable property purchased and placed in service during 2010. Bonus depreciation had expired at the end of 2009. This benefit applies to any property that has a depreciable life of 20 years or less. Also, the property must be new, meaning that the original use of the horse or other property must commence with the taxpayer. For a horse to be eligible, it cannot have been used for any purpose before it is purchased.
“The tax benefits in this bill are great for any horse business that has or is planning on making major purchases,” said Hickey. “The expensing and bonus depreciation provisions can be used together in 2010. For example, let’s assume an owner pays $1 million for a colt to be used for racing and $100,000 for other depreciable property, bringing total purchases to $1.1 million in 2010. If the colt had never been raced or used for any other purpose before the purchase and is placed into service, the owner would be able to expense $500,000, deduct another $300,000 of bonus depreciation (50% of the $600,000 remaining balance), and take regular depreciation on the $300,000 balance.
“We hope the horse industry will take full advantage of these two tax benefits while they last,” Hickey concluded.