Tax Depreciation Opportunities for Thoroughbred Owners

An in-depth look at rules surrounding 100% bonus depreciation


Federal depreciation incentives included with the Tax Cuts and Jobs Act continue to benefit Thoroughbred horse and farm owners. This article provides an in-depth look at the rules surrounding the 100% bonus depreciation, generally the most useful of these incentives to industry participants. This discussion is intended for those active owners operating their horse and farm activities as businesses that use the cash method of accounting.

The new law significantly expanded bonus depreciation. The percentage that may be currently deducted for tax purposes increased to 100% of the purchase price for qualifying property placed in service through 2022. After 2022, the percentage drops by 20% each year until it becomes 20% in 2026. In addition, the definition of qualifying property was expanded to include assets that have been previously owned but not those being reacquired by the purchaser. Previously, assets used by a prior owner did not qualify.

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Legislation Would Restore Three-Year Depreciation

Senate Finance Committee chairman Chuck Grassley, an Iowa Republican, and ranking member Ron Wyden, an Oregon Democrat, introduced bipartisan tax and disaster relief legislation Feb. 28 that includes three-year depreciation for racehorses.

Under the proposed package, three-year racehorse depreciation would be retroactive for 2018, continue through 2019 and grant taxpayers the option to depreciate all racehorses over a three-year period.

Three-year racehorse depreciation was most recently available to the industry in 2017 but Congress did not renew it for 2018 as part of the Tax Cuts and Jobs Act (TCJA) passed in December 2017. The TCJA did include 100% bonus depreciation and a $1 million Sec. 179 expense allowance for qualified depreciable property, two important investment incentives that lessened the need for three-year depreciation in many cases.

However, three-year depreciation continues to be a beneficial option for many racehorse owners, especially racing partnerships with multiple passive owners, as it better aligns deductions with corresponding income opportunities on an annual basis.

The NTRA federal legislative team will pursue passage of three-year depreciation as part of this tax extenders legislation as we have done since its original inclusion in the 2008 Farm bill.