Yesterday, President Bush
signed into law the Economic Stimulus Act. The bill is
intended to provide a jump-start to the lagging U.S.
economy. The new law includes two tax incentives that
would allow a much bigger write-off for horses used in
your business and other property purchased and placed in
service during 2008.
Expensing Allowance. The first
incentive would increase the Section 179 expensing
allowance for horses purchased and placed into service
in 2008 from $128,000 to $250,000. This expensing
allowance applies to farm equipment and most other
depreciable property. Once total purchases of horses,
and other eligible depreciable property, during 2008
reach $800,000, the expense allowance goes down one
dollar for each dollar spent on eligible property over
$800,000.
To illustrate the
expensing allowance, assume a horse business purchases
$750,000 of depreciable property in 2008, including
$650,000 for horses. That business can write off
$250,000 on its 2008 tax return and depreciate the
balance. If instead, purchases were $900,000, the
expense allowance would go down by $100,000. In either
case, the amount of the purchases not expensed may also
be eligible for bonus depreciation, as explained below.
Bonus
Depreciation. The second incentive
brings back 50% first-year bonus depreciation for horses
and most other depreciable property purchased and placed
in service during 2008. It does not apply to property
that has a depreciation life of over 20 years. Also, as
was the case when bonus depreciation was available in
2003 and 2004, 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.
To illustrate bonus
depreciation, assume that in 2008 a business pays
$500,000 for a colt to be used for racing and $50,000
for other depreciable property, bringing total purchases
to $550,000. The young colt had never been raced or
used for any other purpose before the purchase. The
business would be able to expense $250,000 (as explained
above), deduct another $150,000 of bonus depreciation
(50% of the $300,000 remaining balance), and take
regular depreciation on the $150,000 balance.
