Tax Stimulus Bill Will
Benefit Horse Industry
The economic stimulus package signed into law
by President Bush on March 9 includes new depreciation provisions that will
benefit the horse industry. The bill
was a scaled-back version of the ambitious tax bill originally proposed by both
the Republicans and Democrats. Although
a broader tax bill was passed several times by the House of Representatives, it
could not gain the votes needed in the Senate.
The final package was crafted to include the necessary level of tax
cuts, small business tax breaks and unemployment benefits needed for passage in
both the House and Senate.
Under the new depreciation
rules, which will apply retroactively to purchases after September 11, 2001,
taxpayers will be allowed a 30% bonus depreciation on business assets,
including horses, in the year they are purchased and placed in service, as well
as regular depreciation on the balance.
To qualify for the new depreciation rules, a horse must be purchased
during the three-year period from September 11, 2001 to September 11, 2004 and
be placed in service during the period from September 11, 2001 to January 1,
2005.
Because the changes are
intended to stimulate investment and the economy, the additional depreciation
benefits are limited to the individual who first purchases and races or shows
the horse. In other words, if a person
purchased a horse that has been raced or shown by another, that purchaser would
not be entitled to the bonus depreciation.
“It is unclear whether a horse which has been raced or shown, but has
never been bred, would qualify if purchased for breeding. Further research will have to be done on
this issue,” said Jay Hickey, President of the American Horse Council. “But it is clear that a horse purchased for
racing or showing, which has never been used for that purpose, qualifies for
the new 30% bonus write-off.” The
favorable provisions apply to all horses, regardless of breed or use, provided
they are used in a trade or business.
The new rules will allow
37.5% of the cost of a yearling to be written off in the first year, more than
three times the amount allowed under the old rules. Over 50% of the cost would
be written off by the end of the second year, almost twice what was
allowed. With respect to race horses
over two and other horses over twelve, 47.5% of the cost could be depreciated
in the first year and 74% would be written off after the second year.
The new provisions also
benefit owners of other assets used in the horse business. Purchases of equipment and any other
business property which has a depreciable life of 20 years or less will also be
eligible for the 30% write-off in the year the property is acquired and placed
into service. This would include
virtually all equipment used by farms, training facilities, racetracks and
horse shows.
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