On Dec. 3, the House of Representatives passed the Tax Increase Prevention Act of 2014 (H.R. 5771). The bill would extend several tax provisions favorable to the horse industry, including three-year depreciation for all race horses, which expired or were reduced at the end of 2013. The bill extends these provisions retroactively for assets placed in service at any time in 2014.
Since many of the provisions in the House-passed bill are also in the Senate tax extender bill, it is expected to pass the Senate shortly and be sent to the President before the lame-duck session of this Congress ends next week.
During 2013 and before, horse owners, breeders and equine businesses enjoyed a number of favorable tax provisions that reverted to lower levels or expired at the end of 2013. Over sixty tax provisions expired. The bill would extend many of the provisions at 2013 levels through 2014. A description of these provisions follows.
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 had reverted to $25,000 for 2014.
The House bill would extend the expense deduction at 2013 levels of $500,000, with a phase-out at $2 million, for assets, including horses, placed in service in 2014.
Bonus Depreciation. Anyone in the horse business could also write-off up to 50% of new property purchased and placed in service in 2013, including horses and other equipment. This was 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 had expired for 2014.
The House bill would extend bonus depreciation at 50% for new assets purchased and placed in service in 2014.
Depreciation of Race Horses. From 2009 through 2013 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 Minority Leader Mitch McConnell (R-KY).
This change, which eliminated the 7-year depreciation period for race horses, expired at the end of 2013.
The House bill would extend the three-year recovery period for all race horses placed in service in 2014.
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 2013.
The House bill would extend through 2014 the enhanced deduction involving conservation easements.
The House bill must now be passed by the Senate and sent to the President for signing.
Visit the American Horse Council website for more information.