Posted: Jan. 31, 2018
National Thoroughbred Racing Association officials and representatives from the organization’s lobbying firm, The Alpine Group, on Jan. 31 outlined the new federal tax law and noted some of the positives it can have on members of the horse industry.
But they also offered some strong advice: Every case is different, so consult a personal tax adviser.
The overview, provided via teleconference, was a joint effort of the NTRA and the Thoroughbred Horsemen’s Association, a longstanding member and major financial supporter of the NTRA. President Trump signed the bill into law the last week of 2017.
Greg Means, a principal in The Alpine Group, said industry lobbyists began working on the tax issue after Trump was elected in 2016 and the prospects of a tax bill greatly increased. As the bill was being fashioned, they addressed aspects that could impact the racing and breeding industry positively or negatively.
Means said there was nothing in the bill that would have tinkered with the Internal Revenue Service changes on pari-mutuel withholding and reporting the NTRA was successful in obtaining in 2017. They also looked at depreciation schedules and the customary deduction of gambling losses based on winnings; an effort to get the latter changed was dropped because of industry lobbying, but deductions related to travel expenses aren’t part of the new law.
“There are some good provisions (in the law) that should be beneficial to the industry,” Means said. “At the end of the day, the overall bill is in pretty good shape and should provide a net benefit for the industry.”
Means said work continues on industry-related tax-extenders for depreciation that could be addressed in separate bill in Congress, and he also noted lawmakers could at some point push to make permanent some tax provisions that will sunset in 2025.
Lauren Bazel, Vice President of The Alpine Group, said the tax law “was about trade-off.” She called it “pretty favorable” to racing industry participants but noted that each person is affected differently.
“Everyone should walk through their individual situation with a qualified tax adviser,” Bazel said.
“There are significant changes for every taxpayers, but (the law) could improve the environment (for racing),” THA Chairman Alan Foreman said. “They NTRA and The Alpine Group do an outstanding job, and we’re grateful for their representation of this industry in Washington, D.C.”
Here are some general provisions in the bill as provided by the NTRA:
There is a permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%. On the individual side, however, while the top individual income tax rate was reduced from 39.6% to 37%, and the other individual income tax rates and brackets were revised, those changes are temporary—through 2025. This was one of the key trade-offs made. In order to ensure the bill advanced through the Congress lawmakers decided to use certain special procedural rules, which resulted in the need for a sunset date of these individual provisions.
Some other trade-offs they made on the individual side were doubling the standard deduction to $24,000 for joint filers ($12,000 for single filers) but eliminating or imposing limits on itemized deductions. Notably, the itemized deduction for state and local taxes (property and income taxes) was capped at $10,000 and the mortgage interest deduction is limited to interest on loans of up to $750,000 of indebtedness, rather than $1 million (that $750,000 limit still applies on up to two residences, so loans on second homes still count).
In order to provide some comparable benefit to the businesses that operate as pass-throughs— partnerships, sole proprietorships, and S corporations) the law includes a new, temporary, 20% deduction for certain pass-through business income. This deduction will sunset at the end of 2025. This deduction is intended to lower the effective tax rate on this business income to 29.6%, which is far lower than the 37% the top individual tax rate that otherwise would have applied to pass-throughs.