President Obama signed the Small Business Jobs and Credit Act of 2010 into law on Monday. The bill is intended to help small businesses and create new jobs and it continues the bigger write-off incentive originally included in earlier stimulus bills.

The first incentive allows owners to expense up to $500,000 in purchases made in 2010 and 2011. This so-called “Section 179” expensing allowance applies to horses, farm equipment and most other depreciable property.  Once total purchases reach $2 million, the expense allowance goes down one dollar for each dollar spent over $2 million. 

Without the bill the expensing allowance would have been $250,000 in 2010 and gone down to $25,000 for later years.

To illustrate the expensing allowance, if a horse business purchases $750,000 of depreciable property in 2010, including $650,000 for horses, that business can write off $500,000 on its 2010 tax return and depreciate the balance. 

The provision will benefit any horse industry business that purchases and places depreciable property in service in 2010 or 2011.

The second incentive reinstitutes the 50% first-year bonus depreciation for horses and most other property purchased and placed in service during 2010. It applies to any property that has a depreciable life of 20 years or less, and the property must be new, meaning that the original use of the horse or other property must commence with the taxpayer. For a horse to be eligible, it cannot have been used for any purpose before it is purchased.

Prior to this bill bonus depreciation had expired at the end of 2009.

To illustrate expensing and bonus depreciation, assume that in 2010 an owner pays $1,000,000 for a colt to be used for racing and $100,000 for other depreciable property, bringing total purchases to $1,100,000. If the colt had never been raced or used for any other purpose before the purchase, the owner would be able to expense $500,000, deduct another $300,000 of bonus depreciation (50% of the $600,000 remaining balance), and take regular depreciation on the $300,000 balance.

For additional information, check with the American Horse Council.