During 2013 horse owners, breeders, and businesses enjoyed a number of favorable tax provisions that have now reverted to lower levels or expired.
The American Horse Council reported Jan. 13 more than 60 tax provisions expired; some applied to all businesses, including the horse industry, and one was specifically applicable to owners of racehorses.
While the Tax Extender Act of 2013 has been introduced to extend various tax provisions, legislation will not be passed quickly or easily, the AHC said. In addition, the AHC said any extension is affected by the desire in Congress to deal with broader, fundamental tax reform involving much of the current tax code.
For the last few years, the so-called Section 179 business expense deduction was set at $500,000, meaning anyone in the horse business, or any business for that matter, could immediately depreciate up to $500,000 of the cost of any investment in business assets, including horses.
The deduction was reduced dollar-for-dollar once investment in all one's business activities hit $2 million. It applied to horses and other depreciable property purchased and placed in service in the horse business.
The provision was not extended by Congress and has reverted to $25,000 for 2014.
Anyone in a business could also write off up to 50% of new property purchased and placed in service in 2013, including assets used in the horse business, such as horses and other equipment. The provision, known as "bonus depreciation," was restricted to new assets, which meant the first use of the horse or other property had to begin with the taxpayer.
The provision also wasn't extended and has expired completely for 2014.
Finally, from 2009 through 2013 all racehorses could be depreciated over three years, regardless of when they were placed in service. The change, which eliminated the seven-year depreciation period for racehorses and made all racehorses eligible for three-year depreciation, expired at the end of 2013.
Beginning in 2014 the pre-2009 rules will have to be used, meaning owners will have to decide whether to place a racehorse in service at the end of its yearling year and depreciate it over seven years, or wait until it is more than 2 years old (24 months and a day after foaling) and depreciate it over three years.
The tax extender bill would extend more than 60 expired tax provisions, including reinstating the expense deduction at $500,000; reinstating bonus depreciation at 50%; and reinstating the depreciation of racehorses at three years.
In addition to the tax extender bill, a standalone bill has been introduced by Republican Congressman Andy Barr of Kentucky. The Race Horse Cost Recovery Act would make permanent the ability to depreciate all racehorses over three years regardless of their age when placed in service.