Most Arabian horse enthusiasts, trainers, owners, and breeders alike fondly revere the booming expansion of our industry that happened over thirty years ago now. Since then we’ve been getting by on pure passion, ambition, and devotion; searching for ways to help our industry stay afloat after “the crash”. The number of horses being registered per year is dwindling, horse show participation is at an all-time low, and we’re scraping the bottom of the barrel for ideas to bring new people into the breed. It seems as if the Arabian industry might be on its way out, however, they say the night is darkest just before the dawn, and we might possibly be on the brink of a new dawn. Good news is gracing the horse industry.
An opportunity for growth is upon us. The Internal Revenue Code of 1986 has recently been amended to extend expiring provisions and make technical corrections. Back in 1986, in an attempt to fix “tax shelters” the government greatly reduced the amount that could be deducted for tax purposes for equine businesses. As tax attorney Paul Husband stated: “They fixed “tax shelters” like you fix crab grass in your lawn by putting dynamite sticks in the lawn and setting them off – it sure gets rid of the crab grass…and also the lawn. [These] laws hurt more than just the horse industry.” There’s no doubt that, before the crash, the 80’s were a great time for the economic growth of the Arabian breed.
A new Bill, called the Protecting Americans from Tax Hikes Act of 2015, includes several provisions that are very important to the horse industry. This includes the ability to immediately expense or “write-off” up to $500,000 in depreciable business property and also bonus depreciation, which allows the deduction of 50% of the cost of new property purchased and placed in service; this includes horses and other assets used in an equine business. The bill also raises the business expense deduction of Section 179 back up to $500,000 from the previous $25,000. This means that any cost of purchasing industry assets placed into service in 2015 or 2016, including horses, tack, equipment, fencing, and vehicles, can be immediately depreciated up to $500,000. American Horse Council president Jay Hickey explains, “The 179 expense deduction is a real stimulus to the $102 billion horse industry and will support thousands of jobs, and it applies to all depreciable assets used in the horse business, including horses, be they yearlings, race or show horses, mares, stallions, or breeding shares.”
So, what does this mean in a nutshell? Less we have to pay in taxes for our expenses, which means more money in our pockets, which leads to a bigger flow of currency back into our industry. Now that this law has been put into place, horse breeders can once again benefit from their equine businesses by being able to utilize this tax incentive to expense greater amounts of the purchases and investments necessary in an equine breeding program. This is huge news for our industry. This incentive is inviting an economic stimulus once again to the Arabian breed.
As a result, we now have an opportunity in our hands. In my opinion, it is important to pay attention to some of the results from the booming equine economy in the 80’s which were not necessarily helpful to our breed. Perhaps we should look at ways to utilize these tax changes as a tool to improve our breed, rather than advertise our horses as tax write-offs. Without focusing on the purpose of reproduction as a way to improve and benefit the breed, horses can end up being bred for the wrong reasons. This is not meant to diminish the great things that came from this era, however, we can always learn from the past in order to improve the future. We do not do any justice to our Arabians by breeding horses simply to keep them reproducing in order to gain tax benefits. That said, I believe the current majority in our industry strive to create beautiful athletes that are useful, have willing attitudes, and maintain the integrity of the breed.
Personally, I questioned how this new tax revision would benefit all levels of the industry. Every Arabian horse owner/breeder/lover plays a role in our community. Every economy needs a flow of currency and a balance of supply and demand. The Arabian industry, along with every other breed industry, has been declining, basically ever since 1986 when these tax laws were put into place to halt the equine businesses and investors from their associating tax breaks. There have been a few ups and downs, but no significant improvement in the last thirty years. This could be a very exciting time for our industry now that our equine businesses can rightfully gain tax incentives once again and put that needed flow of currency back into the economy.
Currently, our industry is full of passionate “survivors of the crash” who are devoted to the Arabian breed and continued their business for the love of the horse. We need to carry this passion and devotion onward with this opportunity and make our breed the absolute best it’s ever been. The future of the Arabian breed is fragile, and there is more to improving it than tax breaks. However, it could be the boost we need. It has been a rough struggle within our industry, but I believe Arabian lovers are the most passionate of horse owners and we chose Arabians for a distinct reason. If we focus our visions to improve numbers and bring people into our breed, as we begin to feel the much needed economic relief of the new tax law, there will be potential for a great shift.
With many wonderful young, new breeders and trainers coming into our industry, along with the veterans and experts, a change in laws involving expensing and tax deductions, (and just a hint of desperation), I believe we are being presented with a formula to create drastic change and success. There is an article in the Journal of the American Veterinary Medical Association that discusses working on a comeback strategy for the horse industry. Tim Capps, director of the Equine Industry Program at the University of Louisville, made a statement I felt worthy of mention: “What will be required is more consistent data on potential and current horse owners, cross-disciplinary cooperation within the industry, and better marketing efforts.” (See references) Efforts for improvement in conjunction with the new tax bill could create an environment for growth within the entire equine industry.
In order to fully understand the details of these new tax laws, a tax professional will be able to help and provide a better understanding so that an equine business may be able to acquire tax relief.
References
Paul Husband, Tax Attorney
www.husbandlaw.com
Journal of the American Veterinary Medical Association
Avma.org/News/JAVMANews/Pages/140815f.aspx
Other Web References
http://equimed.com/news/politics/congress-passes-tax-bill-with-horse-benefits-president-will-sign-it
http://www.thehorse.com/articles/35597/cracking-the-tax-code
https://www.irs.gov/publications/p946/ch02.html#en_US_2013_publink1000107395
Author:
Jessica Murray
