Tax changes could affect horse owners
The following is a summary of some of the provisions in the new law that will affect those in the horse industry. All threshold figures assume that the taxpayer is married and filing a joint return. A taxpayer filing in a different status changes the thresholds. The new law:
Permanently extends the "middle class tax rates" at 25 percent, 28 percent, and 33 percent for married taxpayers earning less than $450,000 for 2013 and thereafter. For those families making over that amount, the marginal tax rate increases to 39.6 percent, a 4 percent increase.
Extends the Section 179 expense deduction at $500,000 with a phase-out dollar-for-dollar once investment reaches $2 million. It applies retroactively for 2012 and extends through 2013.
Extends the current 50 percent bonus depreciation for qualifying new property purchased and placed in service through 3013.
Makes permanent the capital gains and dividends tax rate for married couples with incomes below $450,000 at zero or 15 percent. For those with incomes above $450,000 the rate for capital gains and dividends is set permanently at 20 percent, rather than taxing dividend income at the same rate as ordinary income, now 39.6 percent.
Makes permanent alternative minimum tax relief by increasing the exemption and phase-out amounts to $78,750 for married taxpayers filing jointly, both figures indexed for inflation.
Permanently repeals the itemized deduction limitation for married taxpayers making less than $300,000. For families earning more than that, deductions would still be reduced. There was a concern that any itemized deduction limitation might adversely affect taxpayers who wager on horse racing, but thanks to industry friends in Congress who realized the unfairness of such a limitation, the new law exempts wagering losses from the overall limitation on itemized deductions. In other words, wagering losses can still be deducted up to the amount of wagering winnings on a taxpayer's return.
Makes permanent the estate tax exemption at $5 million with a top tax rate of 40 percent, indexed for inflation.
Permanently repeals the Personal Exemption Phase-out for married taxpayers filing jointly making below $300,000. Continues the phase-out for others.
Extends for two years the increased contribution limits and carryforward period for contributions of appreciated real property for conservation purposes.
Extends the current Farm Bill through Sept. 30.
The bill delays for two months the automatic across-the-board budget cuts that were to take effect on Jan. 1 under "sequestration." This means that government agencies will continue to operate at current levels. This also sets the next Congressional showdown for March, when the sequestration cuts again loom and the U.S. will again reach its debt limit.
As always, taxpayers should check with their personal tax advisors to see how these changes will affect them. But expect to be back at the overlook bench in 60 days.