Alpaca Tax Deductions | Alpacas of Montana

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Alpaca Tax Deductions

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Breeding Alpacas and Tax Implications

IRS CODE SECTION 179 DEDUCTION

This deduction is available every year when you purchase IRS code 1245(a) (3) assets that are acquired for use in an active business [(Code Section 179 (d) (1)], assuming that you have not used the deduction on a computer or some other qualifying asset.

Many people do not understand that you can use this deduction to write off your purchase of up to $100,000 worth of alpacas this year and that they can take another $100,000 deduction next year. The following example takes into consideration IRS code section 179.

 

     Purchase price (one or more alpacas):    $100,000
     Section 179 tax deduction:                   ($100,000)
     Tax savings 45% (tax bracket 45%)       ($45,000)
     Actual after tax cost out of pocket           $55,000

 

45% tax deduction

In other words, if you are in the 45% tax bracket (state & federal) the government will reduce your taxes by 45% of the cost of $100,000 worth of alpacas.This deduction is available for all taxpayers.

To see how much this will benefit you, simply calculate your state and federal tax bracket and multiply it by the amount of your purchase up to $100,000.

Please Note:

1) that you must have sufficient income to use the deduction. If you have no ordinary income then the deduction will be limited

2) the unused portion of the deduction can be carried forward to subsequent years

3) you may want to forgo electing to take the deduction and simply depreciate the cost of your alpacas. This approach would allow you to create a net operating loss which could be carried back two years and you may obtain a refund of previously paid tax, and

4) to benefit from the 179 deduction the tax payer can not place more than $400,000 of qualifying assets in service in the year that the deduction is taken. 

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