CAPITAL IMPROVEMENTS

Capital improvements to your alpaca ranch can also be written off against income. Barns, alpaca fences, pond construction, driveways, parking lots all can be expended over their useful life. Equipment such as tractors, pickups, trailers and scales each have an appropriate schedule for write-off.

The depreciation schedule for each asset class when running an alpaca business varies from three years to forty years. An alpaca barn or a special purpose agricultural building can be written off pursuant to Section 179 in the year it is put in service. If you do not choose to write the alpaca barn off as a Section 179 asset then you can depreciate it and take advantage of the bonus depreciation.

The original cost basis of an asset is reduced by the annual amount of depreciation taken against the asset. Other costs add to basis, such as certain improvements or fees on sale. The changes to basis result in the adjusted cost basis of the asset. Upon sale excess depreciation, previously expensed, must be recaptured at ordinary income rates. The recapture rules are a bit complex, as are most IRS rules, but the Alpaca Farmers Tax Guide explains them well.

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