Not everyone was happy on January 2 when President Obama signed into law the American Taxpayer Relief Act, notably those whose first 2013 paychecks were smaller than the ones they’d received in 2012.
But the law gave Thoroughbred horse owners a reason to raise a glass in a belated New Year’s toast, as it enacted retroactively favorable provisions that had expired at the end of 2011.
“What was supposed to happen in 2013,” said Joe Bacigalupo, director of member development for the National Thoroughbred Racing Association, “was that the bonus depreciation for 2012, which was set at a 50% schedule, would disappear entirely. The passage of the American Taxpayer Relief Act extended it for 2013.
“There’s a significant improvement between what was expected to happen and what actually happened.”
According to an NTRA release, the bonus depreciation on purchases of race horses was reinstated at 50%, which was the 2012 rate. The expense allowance was increased to $500,000 for this year and retroactively increased from $125,000 to $500,000 for horses purchased in 2012.
Said Joel Turner, a member of Frost Brown Todd attorneys in Louisville, Kentucky, and a specialist in equine legal services, “These incentives are real.”
While conceding that the announcement of the retroactive provisions wasn’t great for tax planning, he said their beneficiaries will be “rewarded for legitimate reasons” and that the aggregate of benefits will mean that in some cases, 80% of the purchase price of a horse can be deducted in the first year.
“The ability to expense the first $500,000 and take depreciation on the next $500,000 means that essentially you’re almost getting a 100% write-off in the first year,” he explained.
Estimating the value of all aspects of the Thoroughbred racing industry to be worth about $4 billion dollars to his home state of Kentucky, Turner approved of the renewal of the provisions.
“Buying horses and writing them off was included in the law because of the ripple effect to the economy,” he said. “This encourages investment in assets.”