The Equine Equity Act, which reduces the capital gains holding period for horses and shortens the depreciation schedule for racehorses, is part of the 2007 Farm Bill and could be approved by the United States Senate in a few days.
The Senate voted Dec. 12 to include the provision in the Farm Bill, which covers a host of things including farm subsidies, food and nutritional programs, and energy and environmental issues. The Equine Equity Act was introduced earlier this year by Republican U.S. Sen. Mitch McConnell of Kentucky.
The National Thoroughbred Racing Association and American Horse Council have had the Equine Equity Act on their list of top legislative priorities. It was one of about 300 amendments proposed for the Farm Bill, said Peggy Hendershot, senior vice president of legislative and corporate planning for the NTRA.
The NTRA reported that under the federal tax code, gains from sales by individuals of property used in a trade or business, including horses, qualify for long-term capital gains and are subject to the maximum capital gains tax rate of 15%. Horses held for breeding, racing, showing, or draft purposes qualify for the 15% capital gains rate if they are held for 24 months.
The Equine Equity Act would change that. Every sale of a racehorse that is held for at least 12 months would qualify as a capital gain or loss--unless the horse is held primarily for sale--giving horse owners and breeders more flexibility to sell and market their horses and helping to stimulate racehorse sales.
Under current tax law, racehorses are depreciated over either three or seven years, depending on their age when “placed in service.” A horse is generally deemed to be placed in service when it begins training.
Racehorses over the age of 24 months when placed into service are depreciated over three years; otherwise, they are depreciated over seven years. In a given crop of horses that make it to the track, about half will start as 2-year-olds and the rest will start as 3-year-olds. Most racehorses (except geldings) are off the track by age 5, making a seven-year depreciation schedule anachronistic.
The Equine Equity Act would allow an owner to recover his/her costs over the period of time that the horse is likely to race. The three-year depreciation would take place over four tax years, commencing midway through the horse’s yearling year and concluding midway through its 4-year-old season.
“This crucial piece of legislation modernizes the tax code with respect to depreciation of racehorses and standardizes the capital gains treatment of horses so as to bring equine industry investments in line with those of other industries,” NTRA president and chief executive officer Alex Waldrop said in a statement. “The (Equine Equity Act) is essential to the financial health of equine agribusiness nationwide, including not only Thoroughbreds, but many other breeds of horses.”
“The Senate adoption of the Equine Equity Act into the Farm Bill is a very significant development for Thoroughbred owners and breeders,” said Bill Farish, chairman of the NTRA Horse PAC.
Horse PAC, the NTRA political action committee, has raised about $2 million since 2002 and spent about $1.5 million on legislative initiatives. It supports more than 175 political candidates.
The NTRA continues to push for legislative changes in the pari-mutuel withholding tax that would raise the minimum amount of winnings that must be reported to the Internal Revenue Service.
“We’re in discussion now to put together free-standing legislation on this one,” Hendershot said, “but we’re also in discussion with the IRS.”
Withholding changes would cost the U.S. government about $500 million over 10 years, Hendershot said. Congress usually likes to have an idea of how it will make up any loss before it passes such measures.