03/13/2002 12:00AM

Racehorses part of federal tax aid

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The Economic Stimulus package signed into law last week by President Bush includes new and higher depreciation provisions that will benefit owners who purchase racehorses at auction or through private sales.

The new rules are backdated and apply to purchases as of Sept. 11, 2001.

As an example under the new depreciation rule, the original cost of a yearling bought at a July 2002 sale can be written off at 37.5 percent during the year of purchase, more than three times allowed under the old rules. More than 50 percent of the cost could be written off by the end of 2003, almost twice what was previously allowed. Depreciation will continue up to eight years on the balance of horses purchased at sales when they are 2 years old or younger.

Increases in depreciation are also in place for horses bought at auction who are older than 2. Under the new rule, the cost of a horse older than 2 who has not been raced can be written off at 47.5 percent during the year of purchase, compared with 25 percent under the old provision.

To qualify for the depreciation, the horse must be bought during the three-year period from Sept. 11, 2001 to Sept. 11, 2004 and be placed in service during the period of Sept. 11, 2001 to Jan. 1, 2005. Another requirement is that the original use of the horse must begin with the purchaser.