|
I saw the $250,000 yearlings sell one after another, after another and after another at the recent Keeneland sale.
The President's new tax policies are helping drive some of that.
Here's the two top changes as they relate to owning horses.
50% Bonus Depreciation
The 50% bonus depreciation applies to new property purchases, including yearlings, when original use of the property begins with the taxpayer. The full 50% bonus depreciation write-off is allowed regardless of when in 2017 the property is purchased, if it is placed in service before January 1, 2018. The 50% bonus depreciation changes to 40% in 2018 and 30% the following year.
$500,000 Expense Allowance
Now permanently in effect, this allows for the write off of up to $500,000 in new or used property. In order to qualify, the property must be both purchased and placed in to service. The expense allowance can only be used against taxable income from the horse business or any other business from which the taxpayer has income, including salaries. It is reduced dollar for dollar once qualified investments exceed $2 million.
* Depreciation is ultra-valuable in our current economic upturn.
I'm not current, but the idea here is to distribute passive losses to the Horse Buyer (Owner). Example, A yearling is purchased for $250,000, and we spend another $75,000 on housing and training for 9 months.
For example, sakes, the colt races and wins $325,000. The amount equal to your investment.
With depreciation you would still show a loss taking the accelerated depreciation schedule., as the language of the law reads
or any other business from which the taxpayer has income, including salaries.
A successful person with shit-tons of income from salary, 1099 income, capital gains, etc... Would write off the phantom losses from Depreciation and his non-passive income would be tax free.
If you're dentist, the money you earn at dentist work is non-passive. Income from Horses, or other investments unrelated to Dentistry is Passive Income.
Under Presidents Trumps new tax policy, he's loosened depreciation.
Old law was that you could only off-set passive losses with passive income. Under the new law, you can offset your MAIN income, (non-passive).
One of the functions that horse racing partnerships perform is to administer the disbursements of tax benefits to the members.
Many of the larger partnerships consistently shoot for paper losses.
If you've been around long enough then you recall Reagan did the same thing in the 80's. He introduced double accelerated depreciation and it sparked an economic boom in Real Estate and other passive assets.
|
