Equine Tax Benefits in Senate Tax Extender Bill

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On July 21, the Senate Finance Committee reported out legislation to extend retroactively a number of tax provisions, including those supported by the American Horse Council.

The bill would extend several tax provisions favorable to horse owners, breeders and equine businesses that expired or were reduced at the end of 2014. These include the three-year depreciation for all race horses, regardless of their age when placed in service.

The bill would extend these various provisions for two years, retroactive to January 1, 2015. This means eligible equine assets, including horses, purchased and/or placed in service at any time in 2015 and 2016 would be eligible for the benefits described hereafter.

Depreciation of Race Horses

From 2009 through 2014 all race horses were depreciated over three years, regardless of their age when they were placed in service. This provision was passed in 2008 through the efforts of Majority Leader Mitch McConnell (R-KY). This change, which eliminated the 7-year depreciation period for race horses, expired at the end of 2014.

The Senate bill would extend the three-year recovery period for all race horses placed in service during 2015 and 2016, regardless of age.

179 Expense Deduction

For the last few years, the so-called Section 179 business expense deduction was set at $500,000. This meant that anyone in the horse business could immediately depreciate up to $500,000 of the cost of any investment in business assets, including horses. The deduction was reduced dollar-for-dollar once investment in all one's business activities hit $2 million.

This provision was not extended by Congress and has reverted to $25,000 for 2015.

The Senate bill would extend the expense deduction at $500,000, with a phase-out at $2 million, for assets, including horses, purchased and placed in service during 2015 and 2016.

Bonus Depreciation

Anyone in the horse business could depreciate up to 50% of the cost of new property purchased and placed in service in 2014, including horses and other equipment. This is known as "bonus depreciation." It was restricted to new assets, which meant that the first use of the horse or other property had to begin with the taxpayer.

This provision was not extended by Congress and has expired for 2015.

The Senate bill would extend bonus depreciation at 50% for the cost of new assets purchased and placed in service during 2015 and 2016.

Conservation Easements

Favorable rules for contributions by farmers and ranchers of capital gain real property for conservation easements, allowing a deduction of up to 100% of the donor's contribution base, expired for 2015.

The Senate bill would extend for 2015 and 2016 the enhanced deduction involving conservation easements.

In the last Congress all of these provisions were extended, but at the last minute, almost a year after they had expired or been reduced. This made it difficult for individuals, including horse owners and breeders, to plan and take advantage of them. In reporting out the tax extenders package yesterday, Finance Committee Chair Orrin Hatch (R-UT) noted this and said, "All of these provisions are meant to be incentives--they are meant to encourage and promote certain activities. If they are expired, they aren't doing much good. That being the case, we need to move this package forward as soon as possible."

The Senate tax extender bill must now go to the full Senate for approval and the House of Representatives.