(Editors note: this is a re-written article I posted some time back however due to the amount of people I encountered that did not know of this important tax incentive, and with Fasig-Tipton this weekend I felt it merited a re-print)
No, I’m not kidding. Section 179 of the Economic Stimulus Package allows for under certain parameters free racehorses. The IRS explains the stimulus package as follows:
The first incentive is the expensing allowance under Section 179, which allows horse owners who purchase horses or other business property and put it in service in 2009 to expense up to $250,000. A limit is in place such that if the total property purchased in the year exceeds $800,000, the expense allowance goes down a dollar for each dollar spent over $800,000.
The next continued incentive brings back the 50% first-year “bonus depreciation” for horses and most other depreciated property purchased and used in 2009. This incentive applies to horses and any other property with a useful life of 20 years or less. To take advantage of this depreciation the property must be “new,” meaning that its original use started with the owner taking the depreciation. “Original use” means the first purpose to which the property is put. Assume that in 2008, a horse business pays $500,000 for a colt to be used for racing and $50,000 for other depreciable property, bringing total purchases to $550,000. The young colt had never been raced or used for any other purpose before the purchase. The business would be able to expense $250,000 as a Section 179 deduction, deduct another $150,000 of bonus depreciation (50% of the remaining balance), and take regular depreciation on the $150,000 balance. As always speak with your tax professional, and if they have any questions the IRS is very willing to help.
This bill equates to a tremendous tax write off and benefit to Thoroughbred racing, which is why I’m trying so hard to get the word out about it. The benefit of this legislation to a sale like Fasig-Tipton could be magnanimous. In tough economic times when individuals tend to hold on to their funds tightly, the impact of knowing that they could take such tax breaks could immensely affect the bottom line at Fasig.
5 comments:
I'll take a six-pack! ... Oops, I have to pay and get the refund later. Bummer.
Yeah...that is the side note you have to pay up front...but you still get your money back. Look at it this way it's better for the Government to hold your money for a little while then give it back, then their normal operating procedures of just keeping it.
The feds should give me stimulus money to spend.
After all, about 90 percent of it remains withheld, per the original plans. Why not shift it toward my longing for racehorses? I promise to spend it prudently, but extensively.
Of course, in order to take the $250K Sec 179 immediate expense election you need to have $250K in profits first. You can't take the 179 to put you in a loss position...as you state though, the bonus depreciation is available and attractive.
The thing is, even without the Section 179 bonus, the Federal tax code is very generous towards owning race horses. You can place a horse on three deprecation schedule once it begins active training (also works with any horse over 12).
The tax authority that really screws horse owners (and everything else) is not the IRS but the local tax guy. Southampton County levels a 4% property taxes on horses (and other "big" animals, but horses are typical more valuable). Ouch.
I fought a two week war with the county commissioner over how much more horse were worth. He claimed my 25 year old Anglo-Arabian mare was worth $15,000 (my wife rescued her from the meat auction) We won in the end.
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