The American Horse Council reports that the Equine Equity Act has been introduced by Senators Mitch McConnell (R-KY), Jim Bunning (R-KY) and Blanche Lincoln (D-AR). “My legislation will remove the unfair tax burden on horses that discourage investment in the horse industry” said Senator McConnell.
Specifically, the Equine Equity Act would: (1) make horses eligible for capital gains treatment after twelve months, similar to other business assets; (2) place all race horses in the three-year category for depreciation purposes; and (3) make horses eligible for federal emergency assistance under circumstances presently enjoyed by other livestock and crop producers.
“This legislation is well-named,” said Jay Hickey, President of the AHC. “It would eliminate the disparate treatment that horse owners and breeders receive under several out-dated and ill-conceived federal laws, including the federal tax code. The horse industry appreciates Senators McConnell, Bunning and Lincoln recognizing this and initiating a change.”
Reduction of Capital Gains Holding Period
Under the federal tax code, gains from sales by individuals of property used in a trade or business, including horses, qualify for long-term capital gains and are subject to the maximum capital gains tax rate of 15%. Since the individual tax rate can go as high as 35%, the lower rate is a real advantage.
Unfortunately, horses held for breeding, racing, showing or draft purposes generally qualify for the 15% capital gains rate only if they are held for 24 months. All other business assets (except cattle) qualify if held for 12 months. Passage of this legislation would end this discriminatory treatment of horses under the tax code and allow horse owners to enjoy the reduced rate upon sale after holding the horse for 12 months, rather than twenty-four.
“Reducing the holding period by half would give horse owners and breeders more flexibility to sell and market their horses,” noted Hickey. “It would mean that every sale of a horse which is held for at least twelve months would qualify as a capital gain or loss unless that horse is held primarily for sale.”
All Racehorses Could Be Depreciated over Three Years
Presently race horses are depreciated over either three or seven years, depending on their age when “placed in service.” A horse is generally deemed to be placed in service when it begins training, which is usually at the end of its yearling year.
Current tax law provides that racehorses that begin training at the end of their yearling year are depreciated over seven-years, even though most will not actually race for seven years. “The legislation introduced by Senators McConnell, Bunning and Lincoln recognizes the economic reality that few horses actually race more than three or even four years. It would change the tax code to allow owners to depreciate all their race horses over three years, rather than seven, regardless of when they are placed in service. The change would provide for a more equitable depreciation schedule for race horses, one that better matches the realities of the situation,” said Hickey.
Making Horses Eligible for Federal Emergency Funds
This legislation would also make horses eligible for federal emergency relief similar to other livestock and crops. It would specifically repeal the restrictive definition of livestock under the old and outdated Agricultural Act of 1949, which defined “livestock” to consist of various animals, including “equine animals used for food or in the production of food.”
The exclusion of horses from relief under the various federal livestock assistance programs instituted since then seems to have followed that same definition and the U.S. Department of Agriculture has followed suit in administering them.
Losses from natural disasters affect horse breeders just as they affect other livestock and crop producers. If a breeding farm or ranch loses horses because of flood, drought, tornado or other natural disasters, it has lost its “crop” and has nothing to sell. If a drought causes feed to become more expensive it affects horse ranches as well as cattle ranches. In cases of natural disasters, federal emergency payments and loans could help some horse owners to keep operating, rather than having to sell their horses or their business.
“This legislation would end this unfair discrimination and provide that in future emergencies horse breeders would be eligible for emergency assistance that producers of other crops and livestock have enjoyed. Broadening the current emergency assistance programs to include horses will rectify the unfair economic situation now facing horse owners and breeders versus other livestock producers in the aftermath of a natural disaster,” said Hickey.
As the national trade association representing the horse industry in Washington, D.C., the American Horse Council works daily to represent equine interests and investments. Organized in 1969, the AHC has been promoting and protecting the industry before Congress, federal agencies, the media and the industry on behalf of all horse related interests each and every day.
The AHC is member supported by individuals and organizations representing virtually every facet of the horse world from owners, breeders, veterinarians, farriers, breed registries and horsemen's associations to horse shows, race tracks, rodeos, commercial suppliers and state horse councils.