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New Tax Laws ... The Horse Buyer’s Friend



by Melissa R. Stevens

Tax incentives originally passed by Congress to jump start the foundering manufacturing sector have had a unexpected effect on the horse industry. Horse sales for a variety of breeds are popping up across the country. The thoroughbred industry has seen a spike in sales since the tax breaks were passed, including the highest ever prices for broodmares and young colts according to a recent article in The Wall Street Journal.

The new incentives, which expire in 2005, have several applications. One of those allows horse buyers to take a quicker depreciation on purchase prices. Under the new tax law, investors who spend $400,000 or less in one year are allowed to claim up to $100,000 as an expense write-off. The limit for write-offs under previous law was $25,000. Those investors who spend over the $400,000 mark don’t receive the write-off, but they are allowed to take a first year depreciation bonus of 50 percent in addition to any other regular depreciation amounts. And there is no dollar limit to what can be claimed under these new tax breaks.

There are some stipulations on these new tax incentives, however. Because the laws were written with the manufacturing industry in mind, they only apply to new depreciable assets, or items that have not been previously used for their intended purpose, according to Marshall Lile, managing partner at Winnett & Associates. That means that the new tax law would only apply to horses that have not yet begun their show career.

There are also stipulations about when the animal was purchased that affect the amount of depreciation. Animals purchased in January do not carry the same write-off as animals purchased in June or December.

These new incentives look to be a source of savings for horse buyers who’ll be heading out to the sales in the next few months, but because of the complexity of the laws, Lile recommends that buyers consult with their accountants or tax advisors about exactly what can be deducted before tax time.

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