On Tuesday, December 15 in the United States, important tax incentives for horse owners, including a key provision that extends three-year tax depreciation for all racehorses through 2016, were finalized by Republican and Democratic negotiators in the House as part of comprehensive budget and tax legislation which Congress will likely pass to conclude the year.
Maintaining the three-year recovery period for racehorse purchases has been a top legislative priority for the National Thoroughbred Racing Association (NTRA) since the provision’s initial enactment as part of the 2008 Farm Bill. Most recently, the NTRA successfully secured inclusion of three-year depreciation in the 2014 tax extenders package that expired at the end of 2014.
“A multi-year extension of three-year tax depreciation for racehorses is welcome news for Thoroughbred owners and breeders,” said Alex Waldrop, NTRA president and CEO. “Accelerated cost recovery encourages investment and creates jobs in Thoroughbred racing while the multi-year extension of this tax incentive helps owners plan for the future.”
The provision allows taxpayers to depreciate, on a three-year schedule, racehorses 24 months of age and younger when purchased and placed into service, as opposed to a seven-year schedule. The accelerated schedule better reflects the length of a typical racehorse’s career and is more equitable for owners.
The comprehensive budget and tax legislation will also retroactively extend two other provisions that spur investment in racehorses and depreciable farm equipment.
‘Bonus depreciation’ will remain set at 50 per cent and may be used by business owners who purchase and place in service qualified new depreciable property. Yearlings that an owner purchases and puts into a training program are one example of eligible property. Bonus depreciation is set at 50% for 2015, 2016 and 2017, at 40% for 2018 and at 30% for 2019.
The ‘Section 179 expense allowance’ will be set at $500,000, with a $2 million threshold for qualified new or used property purchased and placed in service by small business owners in many industries. Total purchases of qualified property that exceed $2 million reduce the taxpayer’s expense allowance dollar for dollar. Broodmares may be eligible for expensing and are an example of used property because of their prior use as a racehorse or broodmare. The comprehensive budget and tax legislation will make the Section 179 expense allowance incentive permanent at this level.
The NTRA will update the industry on the progress of this legislation as it makes its way to the President’s desk for signature before the year’s end.