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 | | From: | Tamara in TN | | Subject: | interesting horse tax stuff...or maybe now I go shopping in Wales?? | | Date: | 22 Jan 2005 09:17:51 -0800 |
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 | ECONOMIC GROWTH TAX BILL GOOD FOR HORSE OWNERS AND BREEDERS
Several provisions of the President's new Tax Bill greatly benefit
the horse business. The biggest benefits are in three areas; expensing,
depreciation and capital gain rates.
EXPENSING
A horse owner/breeder can now expense (write off) up to $100,000 in
horse and/or equipment in the year of purchase (an increase of $75,000
from previous years). The limitation on this expensing is that the
total purchases for a year cannot exceed $400,000, or the expense
amount is reduced dollar for dollar for any amount over $400,000. For
example, if $420,000 of assets were purchased in 2003, then only
$80,000 could be expensed in 2003. This $100,000 potential expense
allowance is retroactive and applies to purchases from January 1, 2003
through December 31, 2005.
DEPRECIATION
The new Tax Bill also increases the "bonus" first year depreciation as
well as allowing regular depreciation. The "bonus" depreciation
pertains to horses and other eligible property and is now 50% versus
30% under the old laws. The amount of purchases that are eligible for
the "bonus" depreciation are total purchases minus those that are
expensed ($200,000 in purchases - $100,000 expensed = $100,000 eligible
for "bonus" depreciation) This applies only to "original use" property.
To find out if you qualify for the "bonus" first year depreciation, you
should discuss your specific situation with your tax specialist.
Both the expensing and depreciation aspects of the new law may be used
together if applicable. For example, if a horse owner/breeder purchase
$200,000 worth of eligible horses in 2003 the write off would be as
follows for 2003:
A. Expense Amount $100,000
B. Bonus Depreciation Amount (200,000-100,000x50%) $50,000
C. Regular Depreciation Amount $5,357
2003 write off $155,357
This is well over 75% of total purchase in 2003. If purchases exceed
$500,000 and expensing amount is eliminated, the first year write off
still exceeds 50% of purchases.
CAPITAL GAINS
The long term capital gain rate that was a maximum of 20% has been
reduced to 15% (the 10% rate has also been reduced to 5% if
applicable). This is important for the horse owner/breeder since horses
held for "draft, breeding, or sporting" purposes (sporting includes
race and show) and held for 24 months may qualify for this rate.
Using the depreciation and capital gain provisions together can be
quite interesting. For example, you qualify for the 15% capital gains
rate and you sold several home-raised two-year-olds that you held for
showing for $100,000 is 2003. Then you invest that $100,000 in breeding
prospects and are in the 35% tax bracket. This break in Capital Gains
would have the following effect, even before taxes:
$100,000 in Sales $100,000 in Purchases & Depreciation Expense
x 15% Tax Rate x 35% Tax Rate
$15,000 Tax on Sale $35,000 Tax Savings on Purchase
As you can see, this break even before tax example has a $20,000 tax
savings to go with it. There are many other scenarios that produce huge
tax incentives for the horse owner/breeder and as with all cases please
consult your tax advisor as to your specific situation. If handled
properly, this new law can be more beneficial to the horse
owner/breeder than any tax bill in over 20 years.
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| | From: | Pat Bryant | | Subject: | Re: interesting horse tax stuff...or maybe now I go shopping in Wales?? | | Date: | Sun, 23 Jan 2005 10:13:02 +0000 (UTC) |
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If you go shopping in Wales be sure to visit me on your way from London.
Pat
"Tamara in TN" wrote in message
news:1106414271.731287.43970@c13g2000cwb.googlegroups.com...
> ECONOMIC GROWTH TAX BILL GOOD FOR HORSE OWNERS AND BREEDERS
>
> Several provisions of the President's new Tax Bill greatly benefit
> the horse business. The biggest benefits are in three areas; expensing,
> depreciation and capital gain rates.
>
> EXPENSING
>
> A horse owner/breeder can now expense (write off) up to $100,000 in
> horse and/or equipment in the year of purchase (an increase of $75,000
> from previous years). The limitation on this expensing is that the
> total purchases for a year cannot exceed $400,000, or the expense
> amount is reduced dollar for dollar for any amount over $400,000. For
> example, if $420,000 of assets were purchased in 2003, then only
> $80,000 could be expensed in 2003. This $100,000 potential expense
> allowance is retroactive and applies to purchases from January 1, 2003
> through December 31, 2005.
>
> DEPRECIATION
>
> The new Tax Bill also increases the "bonus" first year depreciation as
> well as allowing regular depreciation. The "bonus" depreciation
> pertains to horses and other eligible property and is now 50% versus
> 30% under the old laws. The amount of purchases that are eligible for
> the "bonus" depreciation are total purchases minus those that are
> expensed ($200,000 in purchases - $100,000 expensed = $100,000 eligible
> for "bonus" depreciation) This applies only to "original use" property.
> To find out if you qualify for the "bonus" first year depreciation, you
> should discuss your specific situation with your tax specialist.
>
> Both the expensing and depreciation aspects of the new law may be used
> together if applicable. For example, if a horse owner/breeder purchase
> $200,000 worth of eligible horses in 2003 the write off would be as
> follows for 2003:
>
> A. Expense Amount $100,000
>
> B. Bonus Depreciation Amount (200,000-100,000x50%) $50,000
>
> C. Regular Depreciation Amount $5,357
>
> 2003 write off $155,357
>
> This is well over 75% of total purchase in 2003. If purchases exceed
> $500,000 and expensing amount is eliminated, the first year write off
> still exceeds 50% of purchases.
>
> CAPITAL GAINS
>
> The long term capital gain rate that was a maximum of 20% has been
> reduced to 15% (the 10% rate has also been reduced to 5% if
> applicable). This is important for the horse owner/breeder since horses
> held for "draft, breeding, or sporting" purposes (sporting includes
> race and show) and held for 24 months may qualify for this rate.
>
> Using the depreciation and capital gain provisions together can be
> quite interesting. For example, you qualify for the 15% capital gains
> rate and you sold several home-raised two-year-olds that you held for
> showing for $100,000 is 2003. Then you invest that $100,000 in breeding
> prospects and are in the 35% tax bracket. This break in Capital Gains
> would have the following effect, even before taxes:
>
> $100,000 in Sales $100,000 in Purchases & Depreciation Expense
>
> x 15% Tax Rate x 35% Tax Rate
>
> $15,000 Tax on Sale $35,000 Tax Savings on Purchase
>
> As you can see, this break even before tax example has a $20,000 tax
> savings to go with it. There are many other scenarios that produce huge
> tax incentives for the horse owner/breeder and as with all cases please
> consult your tax advisor as to your specific situation. If handled
> properly, this new law can be more beneficial to the horse
> owner/breeder than any tax bill in over 20 years.
>
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