Depreciation of Horse Value Over Time

• One of the major tax breaks enjoyed by thoroughbred horse owners and breeders is depreciation of the value of a horse over time. Thoroughbred race horses are very expensive, and most do not make money for their owners, and this depreciation can result in significant tax savings.
  
  

2009 to 2013 Special Tax Break

• Until 2009 horse owners were required to depreciate the value of a horse over a seven-year period regardless of how long the horse actually produced income, but Kentucky Senator Mitch McConnell managed to get a four-year tax break passed to offer aid to an "ailing" thoroughbred horse breeding/racing industry. This tax break allows thoroughbred horse owners to depreciate the value of their animals over just a three-year period through 2013. The General Accountability Office estimates that this tax break saves the thoroughbred industry over $126 million a year.
  
  

2011 Tax Breaks for Horse Owners

• The tax bill passed by Congress in late 2010 included two tax breaks for horse breeders and owners. The first is the ability to write off up to $500,000 in business expenses (including horses and farm/ranch equipment) in 2011. The second tax break is a limited time 100-percent bonus depreciation. This means that 100 percent of the purchase price of capital equipment (including horses) placed in service between Sept. 8, 2010 and Jan. 1, 2012, can be written off by the owner. However, the capital equipment must be new to qualify for the 100-percent bonus depreciation, which in the case of a horse means it cannot have been shown, raced or used in any way, including for personal use. This means that only purchases of very young horses such as yearlings will generally qualify.
  
  

Partnerships

• A number of equine accountancy specialists, including Patrick J.Hurley of Yorba Linda, Cal., point out that general partnerships have become the preferred means of investing in the horse-racing business. However, he emphasizes that you must be an active, material participant in the business to claim all of the tax advantages of the partnership structure, and that you must keep accurate records demonstrating your participation.