Important tax incentives for horse owners – including a key provision that extends three-year tax depreciation for all racehorses through 2016 – were passed by Congress on Friday, Dec. 18, as part of comprehensive budget and tax legislation.
The Protecting Americans from Tax Hikes (PATH) Act of 2015 maintains the three-year recovery period for racehorse purchases that has been a top legislative priority for the National Thoroughbred Racing Association (NTRA) since the provision’s initial enactment as part of the 2008 Farm Bill. Most recently, the NTRA successfully secured inclusion of three-year depreciation in the 2014 tax extenders package that expired at the end of 2014.
The NTRA applauds the efforts of Congress in recognizing the important role of three-year depreciation for purchasers of young racehorses,” said NTRA President and CEO Alex Waldrop. “Owners and breeders can now invest with confidence knowing that this important tax incentive will be available for at least the next two years.”
The provision allows taxpayers to depreciate, on a three-year schedule, racehorses 24 months of age and younger when purchased and placed into service, as opposed to a seven-year schedule. The accelerated schedule better reflects the length of a typical racehorse’s career and is more equitable for owners.
The PATH Act also retroactively extends two other provisions that spur investment in racehorses and depreciable farm equipment.
“Bonus depreciation” will remain set at 50 percent and may be used by business owners who purchase and place in service qualified new depreciable property. Yearlings that an owner purchases and puts into a training program are one example of eligible property. Bonus depreciation is set at 50% for 2015, 2016 and 2017, at 40% for 2018 and at 30% for 2019.
The “Section 179 expense allowance” will be set at $500,000, with a $2 million threshold for qualified new or used property purchased and placed in service by small business owners in many industries. Total purchases of qualified property that exceed $2 million reduce the taxpayer’s expense allowance dollar for dollar. Broodmares may be eligible for expensing and are an example of used property because of their prior use as a racehorse or broodmare. The comprehensive budget and tax legislation will make the Section 179 expense allowance incentive permanent at this level.
President Obama signed the bill into law later on Friday.