Race Horses Depreciated Over Three Years
 Reprinted from: American Horse Council Tax Bulletin

New Government Stimulus Bill Continues Bonus Depreciation and Higher Expensing For Bonus Owners
An American Horse Council Tax Bulletin

Edited Press Release
February 27 2009, Article # 13691

The 2009 Stimulus Act signed into law by President Barack Obama contains provisions that impact the horse industry, the American Horse Council said in a Feb. 24 memorandum.
The measure contains the bigger write-off for horses and other property purchased and placed in service during 2009, the AHC said. The benefits were part of 2008 tax stimulus legislation, but they expired at the end of 2008.

Here is an overview of what the Stimulus Act does:

Expensing allowance
The first incentive allows an owner who purchases a horse or other business property and places it in service in 2009 to expense up to $250,000 of the cost. The "Section 179" expensing allowance applies to horses, farm equipment, and most other depreciable property.
Once total purchases of horses and other eligible property reach $800,000, the expense allowance goes down one dollar for each dollar spent over $800,000.

(To illustrate the expensing allowance, assume a horse business purchases $750,000 of depreciable property in 2009, including $650,000 for horses. The 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, the amount of the purchases not expensed may also be eligible for bonus depreciation.)

Bonus depreciation
The second incentive continues the 50% first-year bonus depreciation for horses and most other depreciable property purchased and placed in service during 2009. It applies to any property that has a depreciable life of 20 years or less.
The property must be new, meaning the original use of the horse or other property must
commence with the taxpayer. For a horse to be eligible, it cannot have been used for any purpose before it is purchased.

(To illustrate expensing and bonus depreciation, 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 colt had never been raced or used for any other purpose before the purchase. The horse business would be able to expense $250,000, deduct another $150,000 of bonus depreciation (50% of the $300,000 remaining balance), and take regular depreciation on the $150,000 balance.)

State and local sales taxes
The act provides all taxpayers with a deduction for state and local sales and excises taxes paid on the purchase of new cars, light trucks, and recreational vehicles through 2009. The deduction
phases-out for taxpayers with adjusted gross incomes of $125,000 and $250,000 for taxpayers filing a joint return.

Net operating losses
Current law permits net operating losses to be carried back to the two years before the operating loss occurs and carried forward to the 20 years after the loss. For 2008, the bill would extend the maximum carry-back period to five years for small businesses with gross revenue of $15 million or less.

Estimated tax payment relief
The act reduces the 2009 required estimated tax payments for some small businesses.

For more detailed information refer to the AHC Tax Bulletin, Tax Bulletin #338