Investment Incentives Reinstated and Increased

From NTRA
WASHINGTON, D.C. (Jan. 3, 2013) -- The fiscal cliff tax legislation passed by Congress and signed by President Obama earlier this week reinstated two business investment incentives that were scheduled to either expire or be significantly reduced for 2013. Bonus depreciation will remain at 50% as it was in 2012. The expense allowance will be increased to $500,000 in 2013 and retroactively increased from $125,000 to $500,000 for property purchased in 2012.

These incentives may be used by businesses in the Thoroughbred industry and are designed to encourage investment and boost the economy.

Here’s a closer look at bonus depreciation and the expense allowance for 2013:

Bonus Depreciation

  • 50% bonus depreciation is in place for 2013.
  • Applies to new property only; its original use must commence with the taxpayer.
  • Applies to horses, farm equipment and most other depreciable property.
  • A yearling can be an example of a new horse purchase.
  • Property must be purchased and placed in service prior to 1/1/2014.
  • Can be used in conjunction with the expense allowance described below.

Expense Allowance

  • $500,000 expense allowance is in place for 2013 and can be taken retroactively on purchases placed in service in 2012.
  • Applies to new or used property; used is defined as having a prior use.
  • Applies to horses, farm equipment and most other depreciable property.
  • A broodmare is an example of a used horse.
  • Property must be purchased and placed in service prior to 1/1/2014.
  • Can be used to reduce taxable income derived from the horse business or any other business from which the taxpayer has income, including salaries.
  • The $500,000 expense allowance is reduced dollar for dollar once qualified investments exceed $2 million.
  • Can be used in conjunction with bonus depreciation.

Also, remember that accelerated depreciation for young racehorses continues through 2013. This means that taxpayers can depreciate racehorses that are 24 months and younger when purchased and placed in service using a 3-year schedule rather than the previous 7-year schedule. Taxpayers may use this accelerated schedule on any remaining balance that is not written off when taking bonus depreciation and/or the expense allowance.

This information is provided by the National Thoroughbred Racing Association as a courtesy to the racing industry. For more information, please consult your tax advisor or visit www.IRS.gov.