Posted 2005-12-23 9:58 AM (#34361) Subject: writing off horse trailer loan - tax time!
Regular
Posts: 51 Location: DeWitt, AR
Hello:
My accountant moved out of state and while I'm in the process of finding another one, I have a few questions some of you may already know the answer to. Just so you know where I'm coming from, we run a small (the business, not the horses) horse breeding and racing business.
Here's my question: We bought a new LQ horse trailer so that we could stay in it when we take horses to the track and to a friend's training facility. Is the interest on the loan tax deductible as a business loan?
I was told the interest was also tax deductible as it qualified as a "2nd home" since it had LQs.
I know we can depreciate it but if/when we sell it, don't we essentially pay the depreciation money back as capital gains?
Also, wasn't there an accelerated schedule for depreciation of equipment put into service from 2002-2004 including horses. Has that been extended?
What's the best route to go in writing off the horse trailer?
Posted 2005-12-23 11:22 AM (#34364 - in reply to #34361) Subject: RE: writing off horse trailer loan - tax time!
Expert
Posts: 1283 Location: Home of Wild Turkey Whiskey
In order for it to be deductible as a business it would have to be registered in the business name(hard to explain to the IRS) unless like you your business is Horses. You can write the interest off if the living quarters has a bathroom with plumbing(no cabins in Montana). I don't know anything about the accelerated schedule? Maybe this helps some.
Posted 2005-12-23 3:08 PM (#34367 - in reply to #34361) Subject: RE: writing off horse trailer loan - tax time!
Regular
Posts: 51 Location: DeWitt, AR
Hmnn, I guess I thought there were more IRS and tax knowledgeable folks out here. We are classified as a farm. Our tractor doesn't have to be in the "farm's" name to be depreciated as farm equipement. I'm guessing the same is for the trailer. We were audited for a year my husband was still married to his ex-wife and I proved that what the IRS thought was income was her moving money from farm to personal accounts. I framed my letter of apology from the IRS. Word to the wise, on your deposit slips, write where the money came from, - gift, penny jar, reinbursment for buying hay for a friend. I appreciate your posts and will look to our local farm accountants and online equine accountants for additional info. If you are in the horse business and bought equipement or horses in 2002-2004, there is an accelerated schedule of depreciation you should be using.
Thanks and Merry Christmas, and keep you and yours safe and close.
Posted 2005-12-23 9:48 PM (#34375 - in reply to #34361) Subject: RE: writing off horse trailer loan - tax time!
Member
Posts: 28 Location: Omaha, NE
You have asked quite few questions there, free tax advice. Yes you can and must write off a depreciable business asset, generally a horse trialer would be written off over 5 years. There are numerous methods for depreciation 200%DDB, 150%DDB, Straight Line, you may also be eligible for expensing the entire purchase price, all this depends or your tax situation and other assets purchased. Again depreciating a business asset is not option depreciation not taken is lost, very bad when you sell if not taken. More bad news if you sell the trailer its not capital gain/loss its ordinary income taxed similar to wages. The others were taking about the IRS upon audit saying your business is a hobby, again very bad news if IRS says hobby, revenue taxable expenses deductible subject to limitation. IRS can say its a hobby if you don't make money 2 out of 7 years, not hardfast rule many other issues to review. The person who said see a tax specialist gave some sage advice. You have somewhat complex situation, get someone good, not someone who will tell you what you what to hear. Also the kinder gentler IRS has taken a vacation they don't play like they did a few years ago. All can be handled by a competent tax professional.
Posted 2005-12-24 6:58 AM (#34378 - in reply to #34361) Subject: RE: writing off horse trailer loan - tax time!
Expert
Posts: 2689
Originally written by rollingrfarm on 2005-12-23 9:58 AM
Hello:
My accountant moved out of state and while I'm in the process of finding another one, I have a few questions some of you may already know the answer to. Just so you know where I'm coming from, we run a small (the business, not the horses) horse breeding and racing business.
Here's my question: We bought a new LQ horse trailer so that we could stay in it when we take horses to the track and to a friend's training facility. Is the interest on the loan tax deductible as a business loan?
I was told the interest was also tax deductible as it qualified as a "2nd home" since it had LQs.
I know we can depreciate it but if/when we sell it, don't we essentially pay the depreciation money back as capital gains?
Also, wasn't there an accelerated schedule for depreciation of equipment put into service from 2002-2004 including horses. Has that been extended?
What's the best route to go in writing off the horse trailer?
First decide if the trailer is
a) a 2nd home ?
or
b) a capital investment item for the farm business ?
If the answer is "both" consult a tax pro, there MIGHT BE some "dual use" provision. If it has a GVW over 6,000 (it almost certainly does) ask if the 100% accelerated depreciation of vehicles used in business applies.
Posted 2005-12-24 7:54 AM (#34379 - in reply to #34361) Subject: RE: writing off horse trailer loan - tax time!
Regular
Posts: 51 Location: DeWitt, AR
Thanks all, I guess I was wondering how others handled it, and I apologize if I was asking for free advice, I am in the process of finding another accountant and realize that having one is a necessity. The question was just sorta bugging me and so I thought I'd ask, not realizing it looked like a request for free advice.
As for the "kinder, gentler IRS" we were audited before that period and took it to appeals and learned more from the appeals officer who said the IRS had no case, than I have from years of accountants and research. I prize that apology letter and am very aware of what it takes to be a farm or business in the IRS eyes. I also learned that if I am audited again, and again if I feel I am right, that I will simply take it to appeals. Would you believe the IRS agent told us they had a $30K check to us from one of our owners we trained for (who died that year), the IRS agent refused to show us the check which we denied ever receiving, and when we asked the appeals officer he admitted that the agent had "made up" the non-existent check just to see if they would get us to admit to unaccounted for income.
You all have a merry Christmas, give your loved ones an extra hug (I lost my Dad to cancer 2 weeks ago) and keep yourselves safe and healthy and enjoy the heck out of your trailers and your 4 legged friends.
Posted 2005-12-24 8:18 AM (#34380 - in reply to #34361) Subject: RE: writing off horse trailer loan - tax time!
Member
Posts: 28 Location: Omaha, NE
If your looking for information on tax treatment of farm/horse operations, the IRS gives their agents a an information booklet that pertains to the business their auditing. This same booklet is available to the public, I got my copy from a tack store in Omaha, but I am sure its available on line. When I read an issue that was brought to the agents attenion was separating personal use from business use of assets. examples would be boarding your own horses in a boarding oepration, are you deducting your kids show expenses etc....Are you using the trailer for business or personal or combination. It is a very good resource, it gives you the questions to ask your tax professional. The good news is as long as you have a good story the IRS is not going to throw you in jail, you may have to pay a little extra, but no jail time. It sounds like you keep good records so its may be appropriate to be more aggressive.
Posted 2005-12-24 2:36 PM (#34381 - in reply to #34379) Subject: RE: writing off horse trailer loan - tax time!
Expert
Posts: 2689
Free advice being worth every penny...
THIS IS NOT ADVICE !
(-:
You ASKED about the deductability of interest on the loan in a 2nd home context. I threw in a couple of curve balls, sorry 'bout that.
Anyway, I think if you bought it with the intention of using it as a second home, then the answer to your question is "Yes, the interest on that loan should be deductable." I think there is a requirement that it be "lived in" for at least two weeks a year, check the tax code for details.
OTOH, if you bought it to further your horse farm biz, by allowing you to transport to shows and stay AT THE SHOWS (perhaps a critical point that necessitates the camper section) then I'd guess you could capitalize the trailer's cost and depreciate it. You can probably also deduct the loan interest as well "cost of money". I don't know how all this goes with schedule F, but I think I would prefer to capitalize it and wade through the forms for a few hours. If you do this be very careful if/when you sell it. Any money you get above it's depreciated value is regarded as income.
My comment about accelerated depreciation on vehicles with GVW over 6,000 was sort of a joke, although it MIGHT apply to trailers as well as trucks - it is a "vehicle for business use" after all.
Again, this is just the ramblings of an amateur. Do NOT construe it as advice. The only advice I'll give is that you consult a tax pro and you probably have time to do that before you need to file.
Posted 2005-12-25 8:18 PM (#34394 - in reply to #34381) Subject: RE: writing off horse trailer loan - tax time!
Member
Posts: 28 Location: Omaha, NE
Reg, no requirement for number of days for a second home interest deduction. Only can deduct home interest on first or second home (not third, limted to two homes), personal property tax based on value also deductible. Enite cost is deductible if business asset, 6000 GVW (luxury vehicle limitation) only applies to vehicles unless the trailer is a lowry (no idea on spelling, English Horse Transporter) same deduction 5 years, no matter what the cost is (can section 179). Actully don't need to be over 6,000 GVW for greater deduction on vehicle only has to be work truck (i.e tool box in back, work van, horse hauler). Sorry for the anticipated typos etc, just enough christmas cheer. Good riding.
writing off horse trailer loan - tax time!
Personally I think your putting youself in the line of fire. I think you should go to a professional that does Equine Accounting. 
