Sound crazy…it’s not, Under Section 179,of the Economic Stimulus Act of 2008 and extended into 2009, horse owners who purchase horses or other business property and put them into service in 2009 are allowed to expense up to $250,000.
How it works…Suppose a horse business, or individuals wishing to form a horse business, purchase $250,000 of depreciable property in 2009, including (for example) $200,000 for horses. That business could then write off the entire $250,000 on its 2009 tax return…hey…what was the title to this blog…oh yeah!
Certain Conditions Apply…For a horse to be eligible, (or property) it cannot have been used for any purpose before it is purchased. The IRS regulations give specific examples in the case of horses as follows:
On April 1, 2000, E acquires a horse to be used in E’s thoroughbred racing business. On October 1, 2003, F buys the horse from E and will use the horse in F’s horse breeding business. The use of the horse by E in its racing business prevents the original use of the horse commencing with F. Thus, F’s purchase price of the horse does not qualify for the additional first year depreciation deduction.
But wait, there’s still more…If the capital outlay exceeds $250,000 the business is allowed to depreciate the remaining balance as an example:
A horse business in 2009 pays $500,000 for a colt / filly to be used for racing and $50,000 for other depreciable property, bringing total purchases to $550,000. The young horse having never been raced or used for any other purpose before the purchase (as prior discussed). The business would be able to expense $250,000 (as explained above), deduct another $150,000 of bonus depreciation (50% of the $300,000 remaining balance), and take regular depreciation on the $150,000 balance. Now I’ve never been a wiz at math but if you subtract $550,000 from $550,000, lets see that comes to…hey…what was the title to this blog…oh yeah!
Ok, great but…why have these facts not become the focal point of a marketing campaign to potential new owners. A review of the TOBA web site reveled under “Business Issues – Tax Issues” that there is no mention of the above tax laws. In fact under “depreciation” TOBA sites the pre Section 179 laws “Horses may generally be depreciated over three to seven years. Longer periods of depreciation may be elected, and always apply in the case of foreign-based horses. Racehorses over two years old and breeding horses over 12 are depreciated over three years; all others are depreciated over seven years.”
Soapbox time…I have long held to the fact that if the general public knew the thrills and excitement Thoroughbred racing and more distinctly ownership brings they would flock to it. The truth is you don’t have to be a King to be a part of the “Sport of Kings”. Partnerships and syndicates offer an enormous opportunity for individuals to become owners in this great sport. The underlying and essential problem in this equation however is the general public has no idea as to how intensely exciting the sport is and therefore no interest in the possibility of becoming owners. Much less that ownership is affordable to a tremendous amount of the population think of all the fantasy sports players (a future blog) that if they were educated to the possibilities of ownership and indoctrinated to the sheer excitement of seeing their horse race (and especially win) would flock to it. I have done the demographics on fantasy players there are millions of them, a high majority being college educated with incomes which would support their being able to become initial partners and long term sole owners. But, unfortunately and sadly for the sport until “some” organization educates them (there are many venues besides massively expensive marketing campaigns to do so) then this lost segment will remain so, and Thoroughbred racing will be the worst off for it.
