Senate passes three-year depreciation tax rule

The U.S. Senate on Friday passed a tax bill containing a provision allowing horse owners to use a three-year depreciation schedule for racehorses as part of a comprehensive tax bill that is now being sent to President Barack Obama for his signature.

The Senate voted 65-33 to pass the comprehensive tax bill, which passed the House on Thursday by a lopsided vote. Obama is expected to sign the bill.

The tax bill contains a wide variety of tax breaks for various industries, and three of the provisions will apply to constituents of the racing industry. The three-year depreciation schedule for racehorses has been a longstanding feature of tax law, but as a special tax break that lawmakers are reluctant to permanently codify, it requires congressional approval nearly every year.

The accelerated depreciation provision allows horse owners to use a three-year depreciation schedule for any horse 24 months or older once it is placed in service, rather than the standard seven-year depreciation schedule for assets. Federal racing lobbyists have argued that the accelerated depreciation schedule best reflects the typical length of a racehorse’s career.

The bill also includes a provision allowing horse owners to use 50 percent “bonus depreciation” on most racehorse purchases. In addition, the bill includes a provision that could apply to broodmare owners and farm owners by permanently setting the Section 179 expense allowance incentive at $500,000, with a $2 million threshold for new or used property.