Alpaca Taxes 2007: Section 179 Deduction

By Mike Safley

In 2003 alpaca tax benefits got a lot better due to the "Jobs and Growth Reconciliation Tax Act." which was enacted into law on May 28, 2003. The new rules added several powerful incentives for people who buy alpacas. The 179 deduction which is the cornerstone of this act has been raised to $112,000 for 2007. If you purchase any amount up to $112,000 before year end you can claim the entire purchase price as a 179 deduction on your 2007 taxes. This benefit expires in December 2009.

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 computers or some other qualifying asset. Many people do not understand that you can use this deduction to write off your purchase of up to $112,000 worth of alpacas this year and that they can take another $112,000 deduction next year. The following example takes into consideration IRS code section 179. (If you would like a copy of the code section, please give us a call 503-628-3110 or email Fred@alpacas.com.)

Purchase price (one or more alpacas): $112,000
Section 179 tax deduction ($112,000)
Tax savings 45% (tax bracket 45%)    ($50,400)
Actual after tax cost out of pocket        $61,600

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 $112,000 worth of alpacas. This deduction is available for all taxpayers. To see how much this will benefit you, simple calculate your state and federal tax bracket and multiply it by the amount of your purchase up to $112,000. Please remember that you are eligible for this deduction whether you pay cash or finance your purchase. it is conceivable that your tax refund could exceed your cash down payment if you purchase your alpacas on terms.

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 $450,000 of qualifying assets in service in the year that the deduction is taken.