Posted: Dec. 20, 2017
An initial examination by the National Thoroughbred Racing Association of the $1.5 trillion tax bill that passed Congress Dec. 20 shows a number of provisions beneficial to horse breeders and owners.
The tax bill, which will be signed by President Trump, benefits the horseracing industry by slashing corporate tax rates, reducing most individual tax rates, doubling the estate tax exemption from $5 million to $10 million (indexed for inflation occurring after 2011), and generally providing special tax treatment for certain pass-through entities such as sole proprietorships, partnerships, limited liability companies, and S corporations.
The package also includes significant and positive changes to depreciation and expensing of yearlings, breeding stock, farm equipment and other qualifying depreciable property, including:
Bonus Depreciation: An increase in bonus depreciation from 50 percent to 100 percent for both new and used property acquired and put into service after Sept. 27, 2017, and before Jan. 1, 2023. Bonus depreciation permits first-year, full expensing for purchases such as yearlings, breeding stock and farm equipment. Current law provides for 50 percent depreciation on new property only. The new benefits will be effective at the 100 percent rate through 2022. Beginning with 2023, bonus depreciation will be phased out at a rate of 20% each year until fully phased out after 2027.
Section 179 Deduction: The maximum amount that may be expensed under this provision has been increased from $500,000 to $1 million for new and used property. Additionally, the phase-out threshold for the deduction has been increased from $2 million to $2.5 million. Both the maximum deduction and phase-out amount are permanently extended and will be indexed for inflation.
Farm Property: Machinery and equipment used in farming operations will be granted accelerated depreciation with a useful life of only five years and depreciation using the 200% declining balance method. The current law provides for a useful life of seven years and depreciation using the 150 percent declining balance method.
“At more than 700 pages, the tax bill and accompanying joint explanatory statement are enormous in both size and complexity,” NTRA President and Chief Executive Officer Alex Waldrop said. “While the overall impacts on each individual will vary, in general many of the provisions should have a positive impact on the economics of horse racing and breeding.”
For horseplayers, many of whom may benefit from the reduced corporate, individual, and pass-through entity tax rates, the NTRA successfully worked to defeat a proposed amendment that would have eliminated the itemized miscellaneous deduction for gambling losses entirely.
Consequently, horseplayers will continue to be allowed to deduct their losses from wagering transactions (losing tickets, for example) up to the amount of winnings. However, beginning Jan. 1, 2018, through Dec. 31, 2025, the limitation on losses from wagering transactions—up to the amount of winnings—will apply not only to the actual costs of wagers incurred by an individual, but also to other deductible expenses such as travel and lodging incurred by the individual in connection with the conduct of that individual’s gambling activity.
The NTRA notes the information in the release is not a comprehensive explanation of the tax bill. The organization urges every industry participant with tax concerns to consult with tax advisers for information and planning advice applicable to specific situations.