Recent legislation passed earlier this week reinstated an important business investment incentive and substantially increased another incentive program. Both incentive programs could have important implications for purchasers of horses, farm equipment and most other depreciable property in 2013, beginning with Keeneland’s January Horses of All Ages Sale that begins Monday, Jan. 7.
As a result of the new legislation, bonus depreciation will be reinstated at 50%, just 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.
Bonus depreciation applies only to new property whose original use begins with the taxpayer. All such property must be purchased and placed in service prior to January 1, 2014. A yearling can be an example of a “new” horse purchase.
The $500,000 expense allowance applies to new or used property purchased in 2012 or 2013 and can be used to reduce taxable income derived from the horse business or any other business from which the taxpayer has income. A broodmare is an example of a “used” horse.
Also, 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.