Tax Benefits

Tax benefits are available to buyers for purchases made during the rest of 2012.

The American Horse Council
September 4, 2012

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The two tax benefits available are bonus depreciation and expense allowance.

One of the benefits of AQHA’s membership in the American Horse Council is that they are continually updating us on issues that affect our industry and business. One reminder we received from AHC this month – and one you need to share with your constituents – is that two very beneficial tax benefits are available to buyers for purchases made during the rest of 2012. After 2012, those benefits are scheduled to expire or decrease significantly. The two benefits are “bonus depreciation,” which is scheduled to expire at the end of the year, and “expense allowance,” which is scheduled to be much smaller.

Bonus depreciation currently allows a buyer to deduct 50 percent of the cost of eligible horses or farm equipment placed in service in 2012. In other words, one-half of the purchase price of a yearling can be written off in 2012 if the horse is eligible and placed in service this year.

As has been true in the past, to be eligible for bonus depreciation, the original use of the eligible property must commence with the purchaser. Any prior use, personal or business, disqualifies the property. This, in effect, limits bonus depreciation to the purchase of young horses that have not been raced or previously used in any way, including personal use. There is no limit on the number of properties that can be written off using bonus depreciation, the amount of the write-off on any one property or the aggregate total of the write-off, as long as each horse or other property qualifies.

Legislation to increase bonus depreciation to 100 percent on purchases in 2012 has been proposed in both the Senate and the House. However, it is unlikely at this time that the legislation will be seriously considered before the election, if it is considered at all. At that point, it can be argued that raising bonus depreciation to 100 percent no longer has enough stimulus effect.

The expense allowance in effect for 2012 allows the purchaser to write off up to $125,000 of the cost of horses or farm equipment purchased and placed in service in 2012, if the total of all purchases of depreciable property during the year does not exceed $500,000. If purchases exceed $500,000, the expense allowance decreased $1 for every dollar that purchases exceed $500,000.

Unlike bonus depreciation, the expense allowance applies to all horses or farm equipment, regardless of whether the property has been previously used by the seller or someone else. The expense allowance is scheduled to go down to $25,000 in 2013 and thereafter, with the dollar-for-dollar phase-out starting at $200,000.