In recent years, Congress has typically passed a tax extender bill to renew dozens of temporary or expiring tax provisions for individuals and businesses at the end of the year. One of these typically extend provisions was three-year depreciation of race horses. However, Congress has adjourned for the year without taking any action on a tax extender bill, allowing three-year depreciation of race horses and dozens of other tax provisions to expire.
From 2009 through 2016 all race horses could be depreciated over three years, regardless of when they were placed in service. This provision was passed in 2008 as part of a Farm Bill. The change, which eliminated the 7-year depreciation period for race horses and made all race horses eligible for three-year depreciation, expires at the end of 2016. Beginning in 2017, the pre-2009 rules will have to be used, meaning owners will have to decide whether to place a race horses in service at the end of its yearling year and depreciate it over 7 years or wait until it is over 2 (24 months and a day after foaling) and depreciate it over three years.
Congress took no action on a tax extenders bill because they hope to enact major tax reform legislation in the next Congress that would eliminate the need for many of the expiring provisions. Failure to pass the tax extender bill was not due to opposition to the three-year depreciation of race horses or any other specific tax provision.
The AHC will be closely monitoring the development of a tax reform bill and analyzing its potential impact on the horse industry.
If you have any questions please contact the AHC.