The American Horse Council is happy to report that President Obama signed the Small Business Jobs and Credit Act of 2010 into law today. The bill is intended to help small businesses and create new jobs. The bill continues the bigger write-off for horses and other property purchased and placed in service by a horse business that were originally included in earlier stimulus bills.
Expensing Allowance
The first incentive allows an owner who purchases a horse or other business property used in a horse business and places it in service in 2010 or 2011 to expense up to $500,000 of the cost. This so-called “Section 179” expensing allowance applies to horses, farm equipment and most other depreciable property. Once total purchases of horses and other eligible property reach $2 million, the expense allowance goes down one dollar for each dollar spent over $2 million. Without the bill the expensing allowance would have been $250,000 in 2010 and gone down to $25,000 for later years.
To illustrate the expensing allowance, assume a horse business purchases $750,000 of depreciable property in 2010, including $650,000 for horses. That business can write off $500,000 on its 2010 tax return and depreciate the balance.
This provision will benefit any business involved in the horse industry that purchases and places depreciable property in service in 2010 or 2011.
Bonus Depreciation
The second incentive reinstitutes the 50% first-year bonus depreciation for horses and most other depreciable property purchased and placed in service during 2010. It applies to any property that has a depreciable life of 20 years or less. Also, the property must be new, meaning that the original use of the horse or other property must commence with the taxpayer. For a horse to be eligible, it cannot have been used for any purpose before it is purchased. Prior to this bill bonus depreciation had expired at the end of 2009.
To illustrate expensing and bonus depreciation, assume that in 2010 an owner pays $1,000,000 for a colt to be used for racing and $100,000 for other depreciable property, bringing total purchases to $1,100,000. The young colt had never been raced or used for any other purpose before the purchase. The horse business would be able to expense $500,000 (as explained above), deduct another $300,000 of bonus depreciation (50% of the $600,000 remaining balance), and take regular depreciation on the $300,000 balance.
Please call the AHC if you have any questions.
