The Race Horse Cost Recovery Act of 2023: Why the Three-Year Depreciation Schedule for Horses Should be Made Permanent

Blog Post | 112 KY. L. J. ONLINE | November 7, 2023

The Race Horse Cost Recovery Act of 2023: Why the Three-Year Depreciation Schedule for Horses Should be Made Permanent

By: Beckett H. Cromwell, Staff Editor, Vol. 112

Taxes have or will have an impact on every person who “lives or works” in the United States throughout their lifetime.[1] Undeniably, the monetary implications of taxes are felt by many, as the aforementioned standard of simply living or working in the United States is a rather low bar to meet. Taxes related to the horse industry carry a familiar punch to their owners as “[t]he cost of owning a horse is such that it is nearly impossible to be part of the equine industry unless it is done as a business.”[2] As the economic feasibility of owning racehorses is shaky, “[t]here is no need to pay more than you need to properly care for your horse and you should make certain that you are maximizing the tax benefits of your investment.”[3] Congress should pass The Race Horse Cost Recovery Act of 2023 and make permanent the three-year depreciation to reduce the economic instability that race horse owners face and ensure the continued livelihood of horse racing in our country.

In Kentucky, the equine industry is an integral part of the state’s history, culture, and economy.[4] Nationally, the industry is worth $36 billion which “accounts for nearly 500,000 jobs across the country.”[5] In 2021 alone, “Keeneland and Fasig-Tipton, both based in Lexington, accounted for three quarters of the $1.1 billion North American Thoroughbred sales market[,]”[6] showing how much of the industry is dependent on Kentucky’s sales and racing prospects. To either over or understate what the equine industry means not only to Kentuckians, but to tourists, investors, and tangentially related businesses throughout the United States would be a grave problem. Simply recognizing the importance of the industry and its reach is a crucial first step to ensuring its longevity and attractiveness to investors.

Two Kentucky Congressmen have recognized the importance of the industry and its reach by reintroducing a bipartisan bill to incentivize investment in the equine industry and allow for horse owners to maximize the tax benefits of their investments.[7] Republican Andy Barr and Democrat Morgan McGarvey are leading “The Race Horse Cost Recovery Act of 2023” in an effort to “make[] the three-year depreciation schedule permanent for racehorses, regardless of their age when put into service.”[8] Depreciation is defined as “[a] reduction in the value or price of something; specif., a decline in an asset’s value because of use, wear, obsolescence, or age.”[9] Important for tax reasons, depreciation expenses can be used as deductions to lower your taxable income and “recover the cost of [] assets as you use them.”[10] This Bill “allows taxpayers to depreciate . . . racehorses less than 24 months of age when purchased and placed into service.”[11] This is a critical distinction and change because “[i]n the past, racehorses of this age were depreciated on a seven-year schedule.”[12] The National Thoroughbred Racing Association (“NTRA”) states that “[t]he accelerated schedule better reflects the length of a typical racehorse’s career and is more equitable for owners.”[13] Since the three-year depreciation schedule is automatically applied to all horses placed in service within the applicable windows in the years the provision is reauthorized,[14] this would allow for proper treatment and well-being of the horse because “horse owners [can] begin training their race horses when they think best and take advantage of the shorter three-year period[.]”[15] Consequently, horses will no longer be rushed to training simply as a route for their owners to receive a tax break, but they can mature at their own pace, avoiding injury, while the owners still receive a tax benefit.

This special depreciation schedule was first enacted in the 2008 Farm Bill,[16] but “[c]urrently, Congress must reauthorize this provision in the tax law on an annual basis.”[17] Requiring  Congress to reauthorize this provision every year is redundant and a waste of taxpayer dollars.

Congress must pass The Race Horse Cost Recovery Act of 2023 as a more efficient way to accomplish what they have been doing for the past fifteen years and to ensure the economic, cultural, and historical vitality of a sport that means so much to not only our Commonwealth, but to many around the world.

[1] Why is Tax Planning Important?, BC Tax, https://www.bctax.com/blog/the-importance-of-tax-planning/ (last visited Oct. 25, 2023).

[2] Patrick Hurley, Horse Business – Horse Hobby – IRS Guidelines, Allen Fin. Ins. Grp, https://www.eqgroup.com/Library/irs1/ (last visited Oct. 25, 2023).

[3] Tax Law and the Horse Industry: Part VII, Buying, Selling, and Trading Horses, Moskowitz LLP (Nov. 19, 2018), https://moskowitzllp.com/tax-law-and-the-horse-industry-part-vii-buying-selling-and-trading-horses/.

[4] Doug Cauthen, Opinion: Horse racing contributes greatly to our state’s success, but only if we let it, Courier J. (Dec. 17, 2020, 6:24 AM), https://www.courier-journal.com/story/opinion/2020/12/17/why-we-should-keep-investing-kentuckys-horse-racing-industry/3898313001/.

[5] Mark Green, Equine: Moving into the Future, The Lane Rep. (Apr. 18, 2022), https://www.lanereport.com/154909/2022/04/equine-moving-into-the-future/.

[6] Id.

[7] Equine Policy Issues, U.S. Congressman Andy Barr, https://barr.house.gov/horses (last visited Oct. 25, 2023).

[8] Id.

[9] Depreciation, Black’s Law Dictionary (11th ed. 2019).

[10] Depreciation in Layman’s Terms, Wasp Barcode Tech., https://www.waspbarcode.com/buzz/depreciation-in-laymans-terms (last visited Nov. 3, 2023).

[11] NTRA, Omnibus Legislation Includes Key Tax Provisions, COVID Relief for Thoroughbred Industry, Paulick Rep. (Dec. 22, 2020, 11:26 AM), https://paulickreport.com/news/the-biz/omnibus-legislation-includes-key-tax-provisions-covid-relief-for-thoroughbred-industry/.

[12] Id.

[13] Id.

[14] Congress Passes Tax Bill with Horse Benefits; President Signs It, Am. Horse Council, https://horsecouncil.org/press-releases/congress-passes-tax-bill-with-horse-benefits-president-will-sign-it/ (last visited Oct. 27, 2023).

[15] Id.

[16] NTRA, supra note 11.

[17] Equine Policy Issues, supra note 7.