A number of changes went into effect this year as a result of President Donald Trump signing the Tax Cuts and Jobs Act of 2017. Several of those changes could have an impact on many in the horse industry.
While details related to the 1,100-page conference report on the final legislation continue to emerge, the Washington, D.C.-based American Horse Council (AHC) highlighted several provisions of the law, which Trump signed Dec. 22, it believes will have the most direct impact on the horse industry.
- Corporate Taxes: The new tax law reduces the corporate income tax rate from 35 percent to 21 percent and took effect Jan. 1. AHC members filing as “C corporations,” which are generally identified by the suffix, “Inc.,” will see an immediate reduction in their official, or statutory, tax rate. AHC members filing as “C corporations” would include racetracks, makers of pharmaceuticals and agricultural equipment, and large breeding operations governed by officers and a board of directors, among others. While many policy experts believe that the new tax code will be easier to navigate from a business perspective, corporate taxpayers’ effective liability will vary to the extent they are able to utilize the new code’s remaining deductions, some of which are outlined below.
- Small Business, “Pass-Through” Deduction: The Tax Cut and Jobs Act establishes a 20 percent deduction for the first $315,000 of joint income, or $157,500 for individual filers, from “pass-through” entities such as partnerships, sole proprietorships and S corporations. This new provision could benefit small businesses that generally report incomes at or near the new threshold level. While various types of “pass-throughs” constitute the fastest growing segment of AHC members, they also include the majority of U.S. farms. According to Department of Agriculture data, 85 percent of domestic agriculture production comes from “pass through” entities.
- Bonus Depreciation of Equipment: The House and Senate conference report includes 100 percent bonus depreciation – an increase from the current 50 percent rate – through Dec. 31, 2022, for property placed in service after Sept. 27, 2017. Beginning in 2023, bonus depreciation is reduced from 100 percent, to 80 percent in 2024, then falls by 20 percent increments each year through 2026. Farm equipment used in a business operation, breeding stock and, according to a preliminary review of the final language, race horses, will benefit from the robust deduction.
- Losses at the Racetracks: The final law preserves the deduction of losses “sustained … on wagering transactions to the extent of the gains” realized “during the taxable year.” However, the law clarifies that the “limitation on losses from wagering transactions applies not only to the actual costs of the wages, but to other expenses incurred by the individual in connection with the conduct of that individual’s gambling activity.” For example, the law subjects the deduction for travel expenses to and from a racetrack to the cap established by the amount of the gains. Like many of the deductions in the bill, the provision sunsets after 2025.
- Alternative Minimum Tax (AMT): The new law repeals the corporate AMT, ending the need to calculate tax liability twice for a single filing.
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