Horse Owners Protected in Tax Legislation

As a result of the federal action, bonus depreciation will be reinstated at 50%.

The recent fiscal cliff tax legislation passed by Congress and signed by President Obama reinstated an important business investment incentive and substantially increased another incentive program for Thoroughbred owners and breeders and farm owners.

The NTRA said Jan. 3 that both incentive programs could have important implications for purchasers of horses, farm equipment, and most other depreciable property in 2013. As a result of the new legislation, bonus depreciation will be reinstated at 50%, just as it was in 2012. The expense allowance will be increased to $500,000 in 2013 and retroactively increased from $125,000 to $500,000 for property purchased in 2012.

Bonus depreciation applies only to new property whose original use begins with the taxpayer. All such property must be purchased and placed in service prior to Jan. 1, 2014. A yearling can be an example of a "new" horse purchase.

The $500,000 expense allowance applies to new or used property purchased in 2012 or 2013 and can be used to reduce taxable income derived from the horse business or any other business from which the taxpayer has income. A broodmare is an example of a "used" horse.

Also, accelerated depreciation for young racehorses continues through 2013. This means that taxpayers can depreciate racehorses that are 24 months and younger when purchased and placed in service using a three-year schedule rather than the previous seven-year schedule. Taxpayers may use this accelerated schedule on any remaining balance that is not written off when taking bonus depreciation and/or the expense allowance.

"The reinstatement of bonus depreciation and the increase in the expense allowance are good news for horse owners and breeders," said NTRA president Alex Waldrop in a release. "2013 will be a great year to purchase a Thoroughbred or farm equipment from a tax perspective. The NTRA legislative team will continue its efforts to extend these and other benefits even further to stimulate investment in the Thoroughbred industry."