Tax Incentives for Horse Industry in 2012

2012 Investment Incentive Summary (PDF)

Expense Allowance and Bonus Depreciation Update


Section 179 Expense Allowance

  • The expense allowance for horses, farm equipment and most other depreciable property is $125,000 for 2012
  • Property must be purchased and placed in service before 1/1/2013
  • The expense allowance is reduced by one dollar for each dollar of eligible property purchased during the year that exceeds $500,000
  • Applies to new or used property
  • Can be used to reduce taxable income from any business of taxpayer

Bonus Depreciation

  • 50 percent bonus depreciation for 2012
  • Applies to horses, farm equipment and most other depreciable property
  • Property must be purchased and placed in service before 1/1/2013
  • Full 50 percent bonus depreciation allowed regardless of when during the above timeframe eligible property is purchased and placed into service
  • Property must be new – the original use of horse or other property must commence with taxpayer and any prior use makes the property ineligible
  • Can be used in conjunction with expense allowance

Faster Depreciation For All Young Racehorses

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The Farm Bill includes an important depreciation provision that benefits the equine industry:


Accelerated Depreciation

  • Change to a three-year depreciation schedule for all young racehorses
  • Yearling purchases are eligible for 3-year depreciation
  • After second tax year, 62.5% can now be depreciated compared to only 29.85% under previous, seven-year schedule
  • Effective January 1, 2009 through 2013


Comparing Schedules – $100,000 yearling example

Current 3-Year Schedule for Racehorses 24 months and under* 3-Year (4 tax years) Previous 7-Year Schedule for Racehorses 24 months and under* 7-Year (8 tax years)
Year Depreciation Year Depreciation
 1.  $25,000 (25.0%)  1. $10,720 (10.72%)
 2. $37,500 (37.5%)  2. $19,130 (19.13%)
 3. $25,000 (25.0%)  3. $15,030 (15.03%)
 4. $12,500 (12.5%)  4. $12,250 (12.25%)
$100,000 Total  5. $12,250 (12.25%)
 6. $12,250 (12.25%)
 7. $12,250 (12.25%)
 8. $6,120 (6.12%)
 $100,000 Total

 

*These schedules assume the half-year convention applies, meaning all horses placed in service during the year are deemed to be placed in service on July 1. (If more than 40% of the cost of depreciable property placed in service during the year is placed in service in the last quarter of the year, a different rule applies.) The schedule uses 150% declining balance depreciation (200% may be available for some owners).