How Are Horses Depreciated?
Before starting, we recommend having a general idea of what is depreciation.
Are you already familiar with the concept of depreciation? Then, let's get a little more specific and talk about how horses get depreciated.
Tax-wise, the IRS classifies a horse's depreciation as 3-year property if the horse fits one of these criteria:
1) Racehorses over two years old when placed in service. (Exception: Any racehorse placed in service after December 31, 2008, and before January 1, 2022, is treated as 3-year property regardless of the age of the racehorse.)
2) Any other horse over twelve years old when placed in service.
If a horse does not meet any of these criteria, they would be considered 7-year property.
Keep in mind that the IRS does not automatically age all horses on January 1 the way many breed organizations do, so it is important to document the horse's date of birth, if known, to place the asset under the correct property classification.
Also, horses are eligible property for an accelerated expense under the Internal Revenue Code Section 179. Don't be confused by the tax code section - just know that it may be possible for you to claim the entire purchase price in the year of acquisition instead of depreciation.
There are other horse-related assets that are subject to depreciation:
New (but not used) farm equipment – 5-year property
Fences – 7-year property
Land improvements – 15-year property
Barns and other farm buildings – 20-year property
It is important to note that any horse-related inventory items are not eligible to be depreciated.
To read more details about how to depreciate horses, visit the IRS Publication on how to depreciate property.
This post may not contain a complete analysis of the tax issues discussed herein and does not represent official conclusions or advice regarding the matter.