Congress Extends Certain Tax Benefits

The President has signed a $70 billion tax cut bill that includes extensions of several tax incentives that are beneficial to horse owners and breeders.

Extension of the Current Expensing Deduction for Small Business

The 2003 tax act increased the amount that a small business, including a business in the horse industry, could “expense” when it purchases and places an asset, such as a horse, fencing, equipment, etc. in service, from $25,000 to $100,000. The original provision was effective through the end of 2005.  In 2004, Congress extended a slightly expanded version of the small business expensing provision, with higher phase-out levels for small business, through 2007.  The bill just passed by Congress extends the current law for two more years through the end of 2009.

This means that horse owners may continue to write-off up to $100,000 of the cost of such assets, including horses, through 2009. For example, if a person bought a horse for $25,000 and put it into service, he could write-off the full amount of the horse in the first year, rather than depreciating it over several. As before, this benefit is reduced dollar-for-dollar for as the total cost of purchases of capital assets exceeds $400,000 per year.

Extension of the Current Tax Rates on Capital Gains and Dividends

Under current law, capital gains and dividend income are taxed at a 15-percent rate, rather than 20% or ordinary income rates.  Without action, these rates would have increase after 2008 back to their prior level.  The bill just passed extends these reduced rates through 2010.

Increase of Individual AMT Exemption Amount

The 2003 tax act increased the Alternative Minimum Tax exemption amount to $40,250 ($58,000 for married couples filing jointly for 2003 and 2004 to prevent new taxpayers from becoming subject to the AMT).  The Working Families Tax Relief Act of 2004 extended those exemption amounts through the end of 2005.  This legislation again extends the exemption levels through the end of 2006 but at a higher level - $62,550 for married taxpayers and $42,500 for others.