Three-Year Tax Depreciation For Horses

Published: December 16, 2014 10:17 pm EST

A provision that retroactively extends three-year tax depreciation for all racehorses was passed by the United States Senate on Tuesday, December 16 as part of bill H.R. 5771, the Tax Increase Prevention Act of 2014.

The bill, which extends retroactively through the end of 2014 numerous provisions which expired or were reduced at the end of 2013, passed the House of Representatives with overwhelming support on December 3 and is expected to pass into law with President Obama’s approval.

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 2009 Farm Bill.

“The renewal of three-year tax depreciation for racehorses indicates that lawmakers understand the contributions our industry makes to job creation and the country’s overall economic health,” said Alex Waldrop, NTRA President and CEO. “We are especially grateful to Senate Minority Leader Mitch McConnell (R-KY) and Rep. Andy Barr (R-KY) for their leadership and support of this provision which is so important to horse owners and breeders.”

The provision allows taxpayers to depreciate racehorses 24 months of age and younger when purchased and placed into service on a three-year schedule 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.

H.R 5771 also retroactively extends two other provisions that spur investment in racehorses.

“Bonus depreciation” remains set at 50 percent and may be used by business owners who purchase and place in service qualified new depreciable property. This investment incentive permits taxpayers to depreciate in the first year 50 percent of qualified property purchased and placed into service. Yearlings that an owner purchases and puts into a training program are one example of eligible property.

The “Section 179 expense allowance” remains 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.

Information on H.R. 5771 can be found on the U.S. Congress website. The sections of key interest to the horse racing industry are Item 121 (racehorse depreciation), Item 125 (bonus depreciation) and Item 127 (expense allowance).

(with files from the NTRA)

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