Trump’s ‘Big Beautiful Bill’ Could Mean Major Tax Break for Horse Owners

[Wandering Eyes]

The 1,116-page bill the House passed early Thursday morning could have a profound effect on the horse racing industry. Currently, horse owners can only write off 40 percent of the cost of a race horse once it enters service. Under the Trump bill, the write-off, known as bonus deprecation, will be 100% for five years. With the bill now headed to the Senate, there is some speculation that the 100 percent deduction will be made permanent.

The Tax Cuts and Jobs Act of 2017 increased bonus deprecation to 100% until 2023, when it then would be phased down to 80%. Each year it phases down an additional 20% until it becomes completely phased out in 2027.  Currently, it is at 40%.  The person now buying a yearling for $1 million can write off the entire $1 million if the bill becomes law, rather than just $400,000.

“Basically, bonus depreciation gives you the right to write off the entire thing, the entire amount,” said horse owner and equine tax specialist Len Green. “No matter when you buy it during the year, even, no matter whether you pay for it or not, as long as you take title to it. So that was great. Everybody was going absolutely crazy, and then they say, wait a second, this is too good. So you can't get it through Congress that way. You got to say, every year it drops by 20%, so the first year you can write off a hundred percent. Second year you write off 80%. Third year you can write off 60%, then 40%, then 20%, and then you can't use it anymore.  But okay, Mr. Donald comes along and says, you know what? Let's go back to where we were in the beginning and give you a hundred percent.”

The bill must still pass the Senate, which could make some changes. One that is being floated around Capital Hill is to make the 100 % bonus depreciation permanent.

Bloodstock advisor David Ingordo said that passage of the bill would be a huge shot in the arm for the sport.

“It's good because it allows owners to take the bonus depreciation in the year they purchase a horse or when it is put into service,” Ingordo said. “That will a big reason for people to come in and buy yearlings because they can 100% write them off in the first year. That's going to incentivize people to invest in the yearling market that we're getting ready to launch. This is massive. I can speak for myself and my clientele, we've been maximizing this tax strategy over the years and for it to go back up to 100% is huge. I think that a lot of the clients I work with will increase their budgets because of this. A lot of people in my position will be thinking the same way, especially if you're looking to upgrade your stock this is a great way to take advantage of a tax law.”

According to Thomas Meis, the NTRA's communications director, even better news may be ahead if the Senate pushes to make bonus deprecation permanent. In the bill passed by the House, the tax breaks are set to expire after five years.

“Apparently Senate Republicans are looking for more permanence instead of the five-year window,” Meis said “Senator (John) Thune (Majority Leader of the United States Senate) said that permanence is the way to create economic certainty and they specifically mentioned bonus depreciation. There's a good chance that they may go from five years to permanent. We would be very happy with that because getting that on books permanently would be a big plus for racing and the owners. We are hearing that they want it to be permanent in the Senate bill, but we haven't seen that bill yet, so it's hard to say.”

To qualify for bonus depreciation, the horse must be used for business purposes, such as racing, breeding, or training. It cannot be used for personal purposes, such as pleasure riding or as a pet.

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