U.S. tax laws are extremely favorable for buying horses

The permanent restoration of the 100 per cent Bonus Depreciation in President Trump’s One Big Beautiful Bill Act, has already proven to be a key driver of record-breaking auctions in the thoroughbred business.

by Tiffany Rankin

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), providing for a broad array of tax provisions affecting individuals and businesses. The permanent restoration of 100 per cent Bonus Depreciation is a significant win for business owners, including the horse racing industry, which has already record sales in the thoroughbred business.

Read below for the specifics:

The OBBBA permanently restores the 100 per cent bonus depreciation deduction for qualified property purchased and placed in service after Jan. 19, 2025. Qualified property purchased and placed in service between Jan. 1, 2025 – Jan. 19, 2025 will continue to be subject to the reduced bonus depreciation rate of 40 per cent.

Qualified property is tangible property (new or used) that has a recoverable life of 20 years or less, and must be used in income-producing activities predominately within the United States. While the depreciable life of a horse can vary based on its business purpose, it will still fall below 20 years, and therefore eligible for bonus depreciation. As an alternative, a business owner can still write off 100 per cent of the qualifying asset under Section 179 of the Internal Revenue Code (IRC).

There is a significant difference between taking bonus depreciation versus Section 179 depreciation. A business taking bonus depreciation is not limited to amount or taxable income, whereas a business claiming Section 179 can only deduct up to a certain amount ($2.5 million) and can only reduce their income to zero. In a lot of instances, it is more advantageous to take bonus depreciation, which illustrates the significance of the permanent restoration of this provision.

Example: Harness ABC operates a racing operation that annually purchases a large group of horses. For calendar 2025, they anticipate purchasing (and placing in service) after Jan. 19, 2025, $4,000,000 worth of horses. They also estimate that their taxable income, before depreciation, will be $3,500,000. ABC can take bonus depreciation on the whole group of horses, creating a taxable loss to the business of ($500,000). Contrarily, if they opt to claim Section 179 depreciation, that deduction is limited to $3,500,000, carrying over the unused portion to the subsequent tax year.

The ability to now expense 100 per cent of qualifying purchases under the bonus depreciation rules or the Section 179 provisions is very taxpayer-friendly. Consideration also needs to be given to how the chosen deductions coordinate with other provisions of the federal tax code, along with any state tax provisions. Consultation with a qualified tax professional is advisable to help navigate the analysis.