Racing Positioned To Be Positively Impacted by New Tax Bill

The horse racing and breeding industries, and, indeed, gamblers, stand to benefit from the new tax bill that cleared Congress for President Trump's signature, according to an initial assessment by the National Thoroughbred Racing Association.

In the bill, corporate tax rates will be slashed while most individual tax rates will also be cut. The estate tax exemption has been doubled from $5 million to $10 million (indexed for inflation occurring after 2011), while there will also be special treatment for certain pass-through entities (i.e. sole proprietorships, partnerships, limited liability companies, and S corporations).

Changes will occur in the way yearlings, breeding stock, farm equipment and other depreciable property made be depreciated and expensed. These include:

• Bonus Depreciation–an increase in bonus depreciation from 50 percent to 100% for both new and used property acquired and put into service after Sept. 27, 2017, and before Jan. 1, 2023. Bonus depreciation permits first-year, full expensing for purchases such as yearlings, breeding stock, and farm equipment. Current law provides for 50% depreciation on new property only. The new benefits will be effective at the 100% rate through 2022. Beginning with 2023, bonus depreciation will be phased out at a rate of 20% each year until fully phased out after 2027.

• Sec. 179 Deduction–the maximum amount that may be expensed under this provision has been increased from $500,000 to $1 million for new and used property. Additionally, the phase-out threshold for the deduction has been increased from $2 million to $2.5 million. Both the maximum deduction and phase-out amount are permanently extended and will be indexed for inflation.

• Farm Property–machinery and equipment used in farming operations will be granted accelerated depreciation with a useful life of only five years and depreciation using the 200 percent declining balance method. The current law provides for a useful life of seven years and depreciation using the 150% declining balance method.

“At more than 700 pages, the tax reform bill and accompanying joint explanatory statement are enormous in both size and complexity,” said NTRA President & CEO Alex Waldrop. “While the overall impacts on each individual will vary, in general many of the provisions should have a positive impact on the economics of horse racing and breeding.”

Additionally, the NTRA successfully worked to defeat a proposed amendment that would have eliminated the itemized miscellaneous deduction for gambling losses entirely. Horseplayers will therefore continue to be allowed to deduct their losses from wagering transactions up to the amount of winnings. Beginning Jan. 1, 2018 and through Dec. 31, 2025, other deductible expenses incurred by the horseplayer may be included, such as travel and lodging within the conduct of gambling activity.

Waldrop added: “The information presented in this release is not a comprehensive explanation of the tax bill. The NTRA urges every industry participant with tax concerns to consult with your tax advisor for information and planning advice applicable to your specific situation.”