Tax Changes for Horse Owners Take Effect

But negotiations in Congress early this year could restore the benefits.

Federal legislation extending payroll tax deductions didn’t extend the Section 179 expense deduction or 100% bonus depreciation, the American Horse Council reported Jan. 3.

The Section 179 expense deduction returned to $125,000 for 2012 and phases out dollar-for-dollar once purchases of depreciable property reach $500,000. The deduction applies to horses, farm equipment, and other depreciable property used in a business, and permits a horse owner or breeder to write off up to $125,000 in assets purchased and placed in service in one’s horse business in 2012.

The expense allowance for 2010-11 was $500,000 and phased out after purchases exceeded $2 million.

The AHC said bonus depreciation returned to 50% for 2012. It allows horse owners and other horse businesses to write off 50% of the cost of new capital assets, including horses, when purchased and placed in service in 2012.

To be eligible for bonus depreciation the original use of the property must commence with the taxpayer. Any prior use makes the property ineligible.

Bonus depreciation was 100% for eligible assets purchased and placed in service from Sept. 8, 2010, through 2011.

The AHC said the higher levels could be reinstated retroactively to Jan. 1, 2012, depending on negotiations in Congress in the first quarter. The House extended 100% bonus depreciation in its version of the bill, but the Senate did not.