By Heather Sunseri, CPA, Senior Manager at Blue & Co.

For thoroughbred owners and breeders, tax strategy can be just as important as bloodlines and training decisions. And when President Trump signed the “One Big Beautiful Bill” (OBBB) last year, one of the important changes included in the bill, one that we knew our clients and thoroughbred owners and breeders would be thrilled about, was permanent 100 percent bonus depreciation for qualifying property acquired and placed in service on or after January 20, 2025.

What is 100 Percent Bonus Depreciation?

Bonus depreciation allows you to immediately expense 100 percent of the cost of qualifying assets to be used predominantly in the United States in the year they are placed in service, rather than depreciating them over several years.

For equine operations, qualifying assets include purchased racehorses or breeding stock (with some exceptions), farm equipment, trailers, tractors, barns, fencing, certain land improvements, and purchased interests in racehorses.

The appeal is obvious. Purchasing qualifying assets and immediately expensing their full cost can result in significant tax savings. But like most things in tax planning, the right answer depends heavily on your circumstances.

Automatically taking 100 percent bonus depreciation isn’t always the best strategy for your business, and there are several reasons to pause and review your business’s circumstances before racing forward.

When 100 Percent Bonus Depreciation Works in Your Favor

High Income Years Inside Your Business – Bonus depreciation can be a powerful offset against large capital gains, one-time earnings events, or simply a better-than-usual year. Unlike Section 179, bonus depreciation is not subject to the same taxable income limitation, giving it more flexibility. It can even generate or increase a net loss in your business, which you may then use to offset income from other sources.

High Income Years Outside Your Business – While bonus depreciation might cause losses inside your equine operation, those losses can offset income from other sources as part of your overall tax strategy, subject to at-risk and passive activity limitations.

When To Think Twice About Bonus Depreciation

Expecting Higher Future Income – You and your tax professional might decide it would be better to preserve deductions for higher-income years and spread deductions over time.

Risk of Unusable Losses – Passive activity rules, at-risk limits, or net operating loss (NOL) constraints may prevent you from fully using the deduction now.

Planning to Sell the Asset Soon after You Purchase – Bonus depreciation reduces your cost basis in that asset. A sale may trigger depreciation recapture taxes at ordinary rates. Consider current and future income before you decide to take that deduction. If you purchase horses for inventory to be resold later, inventory does not qualify for bonus depreciation treatment.

State Tax Conformity – All good tax strategies should consider the consequences at the state level, because not all states conform to federal rules.

Timing of When the Horse Is “Placed in Service” – To qualify for bonus depreciation, the asset must be placed in service during the tax year the deduction is claimed. If a racehorse is still in training or development and not yet ready for competition, it may not yet meet the placed-in-service threshold.

Racehorses Used Outside the United States – Bonus depreciation requires qualifying assets to be used predominantly within the United States. If a horse is campaigned or stationed primarily overseas, it will not be eligible for bonus depreciation.

Final Thoughts

Increasing bonus depreciation to 100 percent and making the deduction permanent inside the OBBB last year left thoroughbred owners and breeders with a powerful tool, and it might seem like a no-brainer. But it’s not always the right move for your situation. In the thoroughbred industry, where income can fluctuate dramatically from year to year, timing and long-term planning are everything.

Working closely with an advisor who understands both tax law and the nuances of the equine industry can help ensure you’re not just saving taxes today, but also positioning your operation for long-term success.

Every thoroughbred operation has a unique tax profile, and bonus depreciation works best when it aligns with your broader business and financial goals. Before making significant purchases or claiming deductions, contact Heather Sunseri or your local Blue & Co. advisor to evaluate the potential impact on your operation and develop a tax strategy tailored to the equine industry.