Posts Tagged ‘jay hickey’

By Ray Paulick
Thoroughbred breeders need some good news as they sit on pins and needles before Monday’s kickoff of the 14-day Keeneland September yearling sale, and it came from an unlikely source earlier this year: the federal government. The news is just as good, if not better, for Thoroughbred owners who are thinking about buying yearlings.

What is this good news? It is a tax incentive and write-off that was part of the 2009 Stimulus Act signed into law by President Barack Obama allowing horse buyers to write off or expense a significant portion of their purchase, and in some cases the entire purchase. Additional help from Congress came in the Farm Bill, which allows racehorses to be depreciated over three years (four tax years) instead of the previous seven years (eight tax years).

Attorney Thomas A. “Tad” Davis wrote about the tax benefits in the Thoroughbred Daily News recently (click here <http://www.keeneland.com/sales/Pictures/PDFs/TadDavisColumnFinal.pdf> for the article). Blogger Bill Yates, a racehorse owner, also wrote about the benefits here <http://oddsonfavorite.blogspot.com/2009/07/free-racehorses-at-fasig-tiptoncome-get.html> .

What it amounts to is a substantial benefit allowing an owner who purchases a yearling and places it in service this year to expense up to $250,000 of the cost of the horse. Known as a a “Section 179” expensing allowance, it applies not just to horses, but to farm equipment and other depreciable property. Once the total purses reach $800,000, the expense allowance goes down one dollar for each dollar spent over that amount.

Jay Hickey, president of the American Horse Council, used this example in a memo detailing the benefit: “Assume a horse business purchases $750,000 of depreciable property in 2009, including $650,000 for horses. That business can write off $250,000 on its 2009 tax return and depreciate the balance. If instead, purchases were $900,000, the expense allowance would go down by $100,000.”

In either case, Hickey wrote, the amount of the purchase not expensed may be eligible for bonus depreciation.

The 50% bonus depreciation applies to “new” property, which in the case of a horse means it can’t have been used for any other purpose prior to purchase. A Thoroughbred yearling typically qualifies as a “new” property.

Hickey illustrated the bonus depreciation in this example: “Assume that in 2009 an owner 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 horse 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.

The Farm Bill’s depreciation schedule permits a business to depreciate 25% of the original cost in the first tax year, 37.5% in the second, 25% in the third, and 12.5% in the fourth .

The bonus depreciation was part of the 2008 Tax Stimulus Bill that Congress extended earlier this year. It applies only to 2009 and would have to be included in a new law for it to apply in future years.

In other words, the time is now to buy a yearling in order to enjoy the best tax incentives Congress has ever offered.

The write-offs can be applied to profits in the horse business, or, if a horse business shows a loss, those write-offs can be applied to a tax filer’s other businesses or income. As with any business, Hickey said, “In order to take your losses, you have to be involved in that activity as a business and you have to be involved in it on a material basis—at least 500 hours a year.”

The American Horse Council and the National Thoroughbred Racing Association have both worked in Washington, D.C., to give horse owners a voice in Washington, D.C., especially in tax matters.