By Alex Waldrop, President and CEO of the NTRA
Two tax incentives that greatly benefited the horse industry
are set to expire at the end of the year...but there's still time to take
advantage of them if you're thinking of an equipment purchase in 2009. Another
tax benefit - just for horse purchases - continues for several more
Those expiring soon are a pair of tax benefits Congress
allowed in back-to-back Economic Stimulus bills. Bonus
depreciation and an increase in the expensing allowance offer
buyers a tremendous opportunity to write off a substantial portion of the cost
of a horse, or other depreciable qualifying property like farm equipment, in
the year purchased. Although a third consecutive Stimulus bill in 2010 appears
unlikely, Iowa Sen. Charles Grassley has introduced legislation that would
extend bonus depreciation. Stay tuned on whether this eventually will
The good news is that buyers and breeders will continue to
benefit from the faster
depreciation schedule of young racehorses, a measure included in
the five-year Farm Bill that became law on January 1, 2009. The NTRA's
legislative team helped secure passage of the bill, which had bi-partisan
support from Senators Mitch McConnell and Jim Bunning of Kentucky and Arkansas
Senator Blanche Lincoln, among others. It took five years of lobbying, but the
outcome was worth the wait.
The tax code now reflects current racing practices, where
most horses are retired before age five. Since depreciation is used to offset
income generated by an asset over its useful life (the expected period of time,
in years, that a depreciating asset is productive), it made little sense for
any racehorse to be on a 7-year schedule because most typically are not still
on the track earning purse money for their owner.
An important consideration for this new measure is the
definition of a young racehorse. The Internal Revenue Service defines a
young racehorse as one less than 24 months old when "placed in service."
A horse is generally deemed to be placed in service when it begins
training. Those over 24 months old when purchased and put into training
already were on a 3-year schedule. Now all racehorses, regardless of age
when purchased and put into training, are depreciated on that schedule.
All of this means that buyers looking to purchase yearlings
or younger two-year-olds, and ultimately race them, are in a far better tax
position than they were prior to the most recent Farm Bill. Combine this
with lower bloodstock prices and it may be the best time in recent memory to
get out there and buy.
It's important to note that horses purchased for re-sale
(pinhooked) are considered inventory and are not eligible to be depreciated.
For those of you involved in horse ownership as a passive
investor, you are eligible to write off a portion of a horse's
depreciation. I encourage you to consult with a tax professional
regarding your situation.
There remain many questions about the bloodstock market as
we approach 2010: Have we seen the bottom? Will buyer demand increase?
Only time can answer those questions. But we know for sure that tax laws
now better reflect economic reality in our business.
What are your plans for 2010? And, what other tax
incentives would interest you?