b'T aRd W. cRaigo, Jen Shah, and B. Paul huSBand2019 c. sEcTIOn 179 ExpEnsIngBy RichDEDucTIOnsThis summary updates our article from last year and addresses some provisions of the FederalTCJA expands the Section 179 expensing Tax Cuts and Jobs Act (TCJA) that will apply to many equine industry participants, especiallyprovisions. The maximum deduction has horse owners and horse farms. We will not attempt to summarize the entire new law. The mat- increased from $510,000 to $1,000,000. ters discussed herein only provide general information. Readers should consult with an adviserAs under prior law, Section 179 expens-about specific situations before undertaking action based on this general information. ing is available only to active businesses (under the Section 469 passive activity loss rules) and cannot be used to create or in-I. ObTaInIng EarlIEr DEDucTIOnsb. gEnEral DEprEcIaTIOn crease losses in a business, including horse ThrOugh cOsT rEcOvEry EnhancEmEnTs fOr hOrsE businesses unless the owner is also em-a. bOnus DEprEcIaTIOn OwnErs anD farm OwnErs ployed, or has another active and profitable The big news concerning bonus deprecia- Under the Modified Accelerated Cost Re- business(es). If so, then Section 179 can tion under the TCJA is that the deductionscovery System (referred to in the financialincrease horse business losses provided the are expanded from 50% to 100% of theworld as MACRS), depreciation de- overall losses are more than offset by aggre-costs of property acquired and placed inductions have long been calculated usinggate income from the taxpayers employ-service in the United States before Jan. 1,either the 150% or 200% declining balancement or the net income from the taxpayers 2023. There is not an annual limit on themethods. Those engaged in farming,other business(es) (subject to limitation amount of bonus depreciation that may beincluding horse breeders, were previouslyfirst at the multiple-member pass-through claimed, and it may be used to produce anrequired to use the 150% declining balanceentity level, if applicable, and finally at the overall tax loss. Bonus depreciation nowmethod. TCJA removes that requirement.owner level). applies to used property as well as newBeginning in 2018, farmers may use theThe $1 million maximum Section 179 property. 200% method. New seven-year farmannual deduction is reduced dollar for dol-The inclusion of used property is aequipment becomes five-year property.lar by the total cost of eligible property to major benefit to the Thoroughbred indus- Both of these updates will accelerate depre- the extent it exceeds $2.5 million (up from try. Under TCJA the costs of purchasingciation deductions.$2.03 million for 2017 only). For example, yearlings, 2-year olds in training, activeTCJA did not reinstate the three-yearpurchasing $3.5 million of eligible horses racehorses, or breeding stock can now berecovery period for depreciation on pur- in 2018 would eliminate the entire poten-written off in the initial year if these horseschased yearlings. Whether Congress willtial expensing deduction of $1 million (but are predominantly used in the Unitedreenact it retroactively for 2018 and afterthe purchased property would likely still States. The only used property limitationhas not yet been decided.qualify for bonus depreciation now at 100% of cost and without any limitation is that a purchase of property previously owned and used by that same purchaser is disqualified. Thus, in the rare instance when one purchases or claims a horse previously owned, then the purchase would not be eligible. Equipment, land improvements, and barns continue to qualify. Thus, if a farm is purchased in the United States, the portion of the purchase price allocable to barns, land improvements, fencing, and equip-ment is eligible for the 100% write-off at purchase.To qualify for bonus depreciation also requires that the taxpayer acquired the property by purchase, which generally excludes acquisitions: 1) from certain close family members, 2) by the majority partner of a partnership selling the property, 3) by a shareholder in a controlled group of corporations, 4) by gift, or 5) by bequest.The bottom line on bonus deprecia-tion increasing to 100% and now being available for used property is that the horseThe portion of a farms purchase price allocable to barns, land improvements, fencing, and equipment isindustry should benefit greatly. eligible for a 100% write-off at purchase.9512_Taxes.indd 95 3/20/19 4:41 PM'