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U.S. House Extends Favorable Tax Provisions

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A federal bill that would extend several tax provisions favorable to the horse industry, including a three-year depreciation, was passed by the U.S. House of Representatives Dec. 3.

The Tax Increase Prevention Act of 2014 (H.R. 5771) would extend tax provisions that expired or were reduced at the end of 2013. Many of the provisions in the House bill are also in the Senate tax extender bill, which is expected to pass the Senate shortly. The bill would then be sent to President Barack Obama for his signature before the lame-duck session of this U.S. Congress ends next week.

If the bills become law, they will extend many of the provisions at 2013 levels, and make them retroactive for assets placed in service at any time in 2014.

During 2013 and before, horse owners, breeders, and equine businesses enjoyed a number of favorable tax provisions that reverted to lower levels or expired at the end of 2013, according to the American Horse Council. Over 60 tax provisions expired. A description of these provisions are as follows:

Section 179 Expense Deduction

For the last few years, the so-called Section 179 business expense deduction was set at $500,000. The provision allowed anyone in the horse business to immediately depreciate up to $500,000 of the cost of any investment in business assets, including horses. The deduction was reduced dollar-for-dollar once investment in all one's business activities hit $2 million.

This provision was not extended by Congress and had reverted to $25,000 for 2014.

The House bill would extend the expense deduction at 2013 levels of $500,000, with a phase-out at $2 million, for assets, including horses, placed in service in 2014.

Bonus Depreciation

Anyone in the horse business could also write off up to 50% of new property purchased and placed in service in 2013, including horses and other equipment. This was known as "bonus depreciation." It was restricted to new assets, which meant that the first use of the horse or other property had to begin with the taxpayer.

This provision was not extended by Congress and had expired for 2014.

The House bill would extend bonus depreciation at 50% for new assets purchased and placed in service in 2014.

Depreciation of Racehorses

From 2009 through 2013 all race horses were depreciated over three years, regardless of their age when they were placed in service. This provision was passed in 2008 through the efforts of Minority Leader Sen. Mitch McConnell (R-KY).

This change, which eliminated the seven-year depreciation period for race horses, expired at the end of 2013.

The House bill would extend the three-year recovery period for all race horses placed in service in 2014.

Conservation Easements

Favorable rules for contributions by farmers and ranchers of capital gain real property for conservation easements allowed a deduction of up to 100% of the donor's contribution base, which expired for 2013.

The House bill would extend through 2014 the enhanced deduction involving conservation easements.

The House bill must now be passed by the Senate and sent to the President for signing.

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