01/04/2013 5:18PM

Fiscal-cliff bill beneficial to owners and breeders

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The legislation signed to prevent the national “fiscal cliff” included a pair of provisions for tax incentive programs that benefit Thoroughbred owners and breeders.

The Section 179 expense allowance will be increased to $500,000 in 2013, with a phase-out dollar-for-dollar once the investment reaches $2-million. Additionally, the expense allowance was retroactively increased from $125,000 to $500,000 for property purchased in 2012.

For horsemen, this applies to property purchases classified as “new,” such as a yearling bought at a sale, or “used” property, such as a broodmare. That incentive can be used to reduce taxable income derived from the horse business, or any business in which the taxpayer has income.

“For most people—maybe not people who buy horses for $4 million—but for most people, they’re going to be able to write off the cost of the entire horse or other business asset for 2012 or 2013 if they purchase it and place it in service,” said Jay Hickey, president of the American Horse Council.

The second provision reinstates bonus depreciation to last year’s rates on “new” property, such as a yearling, at 50 percent. The bonus depreciation applies only to property whose original use, namely racing, begins with the taxpayer and must be purchased and placed in service before January 1, 2014.

Also, accelerated depreciation for young racehorses continues through 2013. This means that taxpayers can depreciate racehorses that are 24 months and younger when purchased and placed in service using a three-year schedule rather than the previous seven-year schedule. Taxpayers may use the accelerated schedule on any remaining balance that is not written off when taking bonus depreciation and/or the expense allowance.

“Both of those are very good incentives for people to invest in and expand their horse businesses,” Hickey said. “The tax incentives are in place for another year to encourage people to buy horses, buy tractors, buy fencing, buy equipment that they use in their horse business.”