Favorable depreciation schedule could soon be law
May 16, 2008
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After months of negotiations between the House and Senate, Congress passed the Food, Conservation, and Energy Act of 2008, commonly known as the Farm Bill, and it could shorten the timespan for the depreciation of racehorses.
The House passed the bill on May 14 by a vote of 318 to 106. The Senate passed it a day later, May 15, by a vote of 81 to 15. President Bush has announced that he will veto the bill because of the overall cost, which approaches $300 billion. If he does, Congress can override the veto by a two-thirds vote of both chambers. Based on the votes for the bill, it appears likely that Congress will override a Bush veto for the second time in his presidency.
The Food, Conservation, and Energy Act of 2008 includes several provisions that benefit the horse industry.
The tax portion of the bill will amend the current depreciation schedule for race horses to make it uniform at three years. Effective January 1, 2009, all race horses will be depreciated over three years, regardless of their age when placed in service. Prior to then race horses will continue to be depreciated over seven years if they are placed in service before they turn two. This change to the tax code for race horses will “sunset” after five years, ending at the end of 2013.
Last year Senators Mitch McConnell (R-KY), Jim Bunning (R-KY) and Blanche Lincoln (D-AR) introduced the Equine Equity Act (EEA), which proposed to put all racehorses in the three-year category for depreciation purposes and make horses eligible for capital gains tax treatment after being held for twelve months.
“The EEA was included in the Senate version of the Farm Bill by an amendment offered by Senator McConnell,” said
Jay Hickey president of the American Horse Council. “Although the Equity Act was not in the House-passed Farm Bill, the depreciation provision was included in the final bill through the efforts of Senator McConnell who understood the inequity and worked overtime to ensure it was changed.”
With the passage of this provision, horse owners will no longer have to decide whether to place their horse in service at the end of its yearling year, and depreciate it over seven years, or wait until the horse reaches 24 months and a day in order to use the three-year depreciation schedule. This period is often only a few months.
“Beginning in 2009, all race horses will be depreciated over three years regardless of when placed in service. This amendment will end the inequitable situation of depreciating race horses over seven years, a period that is about twice as long as their actual racing time,” said Hickey.
The second tax provision in the EEA, which would have shortened the capitol gains holding period for horses from two years to one year, was not included in the final conference version of the Farm Bill passed by Congress.
Equine Farmers and Ranchers Eligible for Emergency Loans
Another provision in the bill makes horse breeders eligible for the first time for emergency federal loans following a disaster. This change will include “equine farmers and ranchers” within the group of producers eligible for these federal emergency loans. “Horse breeders have not been eligible for these loans, which have been available to other livestock producers for some time,” said Hickey. “Horse breeders suffer losses from hurricanes, drought, ice, floods and other natural disasters just like other livestock producers do. This provision will end the disparate treatment of horses and horse breeders by making them eligible for emergency loans under the same conditions and limits as other livestock producers. Again, the horse industry owes thanks to Senator McConnell for his efforts in passing this provision.”
Horses Specifically Included as Livestock in Disaster Assistance Program
The Farm Bill also includes a new permanent disaster assistance program that will provide relief funds to farmers and ranchers who suffer losses in areas that are declared disaster areas by USDA. This program is intended to make funds available sooner following a disaster. Horses are specifically included within the definition of livestock eligible for the program.
“The inclusion of horses was pursuant to an amendment offered by Senator Bunning to the Senate Farm Bill. The provision was accepted by the Conference Committee,” said Hickey. “This is important to the horse industry and we appreciate his efforts.”
The horse industry has been working for these last two changes for some time. The industry is now treated like other livestock producers with respect to federal emergency programs. (American Horse Council)