Tax Advantages to Buying a Racehorse
Percentage of the purchase price that can be deducted currently
© B. Paul Husband 2026
Purchasing a racehorse can have certain tax benefits, regardless of the breed of horse, Thoroughbred, Quarter Horse, Arabian, Standardbred, or Appaloosa.
A racehorse over the age of two years old (measured from the foaling date of the horse – not January 1 of each year), when first placed in service (placing a racehorse into training is usually considered “placed into service”) on a three year schedule under the Modified Accelerated Cost Recovery System (MACRS”) on a three year schedule can be deducted completely in the MACRS three year property as follows:
Year One 33.3%
Year Two 44.45%
Year Three 14.81%
Year Four 7.41%
Wait a minute, Mr. Husband, didn’t you say that it was a three year MACRS cost recovery schedule? What is the story with the Fourth Year shown above?
Well right, it does take 4 years to recover the cost of a two year old racehorse under the MACRS Three Year Schedule. There are two explanations.
But the good news is that using either Bonus Depreciation or Section 179, it is possible to recover the cost (depreciate ALL of the basis (the purchase price, which may be subject to some adjustment) in the year that the horse is purchased and placed into service.
The entire cost of a racehorse (or a show horse for that matter can be recovered the year of purchase by one of two methods: (1) Bonus Depreciation, or (2) Section 179 expensing.
BONUS DEPRECIATION
Bonus Depreciation got a big boost from the One Big Beautiful Bill Act (P.L. 199-21) which increased the percentage of the price plus or minus adjustments to 100%. Bonus Depreciation is an additional first-year depreciation allowance claimed on certain new and used qualifying property, acquired and placed in service after January 19, 2025.
Bonus Depreciation under Internal Revenue Code Section 168 to a number of classes of assets including assets that have a MACRS recovery period of 20 years or less. Horses have either 3 year or 7 year cost recovery periods under MACRS, and therefore a purchase of a horse will qualify for Bonus Depreciation.
There is no limit on the amount of Bonus Depreciation that may be claimed in a particular tax year. Also, a short tax year does not affect the availability of Bonus Depreciation. For this reason, Bonus Depreciation may be preferable for new horse businesses.
Bonus Depreciation must be taken by a horse business owner unless the business owner specifically elects out of it on a timely filed tax return, using IRS Form 4562. This form must be filed with the original tax return for the year in which the horse is purchased and placed in service, whether or not it is timely filed. Instances in which it is more favorable for a horse business owner to opt out would tend to be few, although one reason might be that a profit year would be achieved if the purchased horse is NOT treated with Bonus Depreciation, and for example, a horse business owner with a profit year before Bonus Depreciation might want to keep the profit year and not allow Bonus Depreciation make the year a loss year for federal tax purposes.
Generally Bonus Depreciation is favorable to horse business owners, particularly in light of Husband’s First Law of tax planning: “It is more blessed to deduct now than to deduct later”.
SECTION 179 EXPENSING
Now let’s turn to a Section 179 expensing election, the other method under the Internal Revenue Code to “expense”, i.e., deduct the basis (usually cost with a few possible adjustments) in the year that the horse is purchased and placed in service.
There are limits to the amount of Section 179 deductions. The aggregate amount which may be currently deducted under Section 179 is $2,500,000, which is reduced dollar for dollar for costs of qualified property placed into service during the year exceeds $400,000. An election must be made to elect Section 179 treatment.
Section 179 Expensing is not permitted to push a horse business’ net income for the year go negative.
There is another limitation to application of Section 179, a horse acquired from a spouse, ancestors and lineal descendants.
What are the situations in which a horse business owner would prefer Section 179 to Bonus Depreciation?
Section 179 permits a horse business-owning taxpayer elect exactly which assets to expense and how much. Section 179 can be a more precise method for tax management.
Some states (e.g. California) do not conform to Bonus Depreciation but do conform to Section 179, either partially or in full. California returns and some multi-state returns could have better results using Section 179.
BOTTOM LINE PRACTICAL APPLICATION
Buying a racehorse, or a show horse or a barrel racing horse can reduce your tax bill and improve your business prospects. And with Bonus Depreciation can be a viable tax planning tool even if done in December.
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B. Paul Husband
HUSBAND LAW
[email protected]
473 E. Avenida Olancha Suite 3
Palm Springs, California 92264
(818) 955-8585
A racehorse over the age of two years old (measured from the foaling date of the horse – not January 1 of each year), when first placed in service (placing a racehorse into training is usually considered “placed into service”) on a three year schedule under the Modified Accelerated Cost Recovery System (MACRS”) on a three year schedule can be deducted completely in the MACRS three year property as follows:
Year One 33.3%
Year Two 44.45%
Year Three 14.81%
Year Four 7.41%
Wait a minute, Mr. Husband, didn’t you say that it was a three year MACRS cost recovery schedule? What is the story with the Fourth Year shown above?
Well right, it does take 4 years to recover the cost of a two year old racehorse under the MACRS Three Year Schedule. There are two explanations.
- The standard tax lawyer/CPA explanation is that the fourth year is needed because the method used under MACRS to calculate the first year deduction does not capture ALL of the cost of the asset (horse) purchased, and the part of the cost that was not received by the taxpayer in Year 1 is available to be used in Year 4; and
- This is government-speak – three year cost recovery schedules just happen to take four years.
But the good news is that using either Bonus Depreciation or Section 179, it is possible to recover the cost (depreciate ALL of the basis (the purchase price, which may be subject to some adjustment) in the year that the horse is purchased and placed into service.
The entire cost of a racehorse (or a show horse for that matter can be recovered the year of purchase by one of two methods: (1) Bonus Depreciation, or (2) Section 179 expensing.
BONUS DEPRECIATION
Bonus Depreciation got a big boost from the One Big Beautiful Bill Act (P.L. 199-21) which increased the percentage of the price plus or minus adjustments to 100%. Bonus Depreciation is an additional first-year depreciation allowance claimed on certain new and used qualifying property, acquired and placed in service after January 19, 2025.
Bonus Depreciation under Internal Revenue Code Section 168 to a number of classes of assets including assets that have a MACRS recovery period of 20 years or less. Horses have either 3 year or 7 year cost recovery periods under MACRS, and therefore a purchase of a horse will qualify for Bonus Depreciation.
There is no limit on the amount of Bonus Depreciation that may be claimed in a particular tax year. Also, a short tax year does not affect the availability of Bonus Depreciation. For this reason, Bonus Depreciation may be preferable for new horse businesses.
Bonus Depreciation must be taken by a horse business owner unless the business owner specifically elects out of it on a timely filed tax return, using IRS Form 4562. This form must be filed with the original tax return for the year in which the horse is purchased and placed in service, whether or not it is timely filed. Instances in which it is more favorable for a horse business owner to opt out would tend to be few, although one reason might be that a profit year would be achieved if the purchased horse is NOT treated with Bonus Depreciation, and for example, a horse business owner with a profit year before Bonus Depreciation might want to keep the profit year and not allow Bonus Depreciation make the year a loss year for federal tax purposes.
Generally Bonus Depreciation is favorable to horse business owners, particularly in light of Husband’s First Law of tax planning: “It is more blessed to deduct now than to deduct later”.
SECTION 179 EXPENSING
Now let’s turn to a Section 179 expensing election, the other method under the Internal Revenue Code to “expense”, i.e., deduct the basis (usually cost with a few possible adjustments) in the year that the horse is purchased and placed in service.
There are limits to the amount of Section 179 deductions. The aggregate amount which may be currently deducted under Section 179 is $2,500,000, which is reduced dollar for dollar for costs of qualified property placed into service during the year exceeds $400,000. An election must be made to elect Section 179 treatment.
Section 179 Expensing is not permitted to push a horse business’ net income for the year go negative.
There is another limitation to application of Section 179, a horse acquired from a spouse, ancestors and lineal descendants.
What are the situations in which a horse business owner would prefer Section 179 to Bonus Depreciation?
Section 179 permits a horse business-owning taxpayer elect exactly which assets to expense and how much. Section 179 can be a more precise method for tax management.
Some states (e.g. California) do not conform to Bonus Depreciation but do conform to Section 179, either partially or in full. California returns and some multi-state returns could have better results using Section 179.
BOTTOM LINE PRACTICAL APPLICATION
Buying a racehorse, or a show horse or a barrel racing horse can reduce your tax bill and improve your business prospects. And with Bonus Depreciation can be a viable tax planning tool even if done in December.
---
B. Paul Husband
HUSBAND LAW
[email protected]
473 E. Avenida Olancha Suite 3
Palm Springs, California 92264
(818) 955-8585