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By Linda Berry Walker
 Many
have portrayed 2008 as a year filled with economic challenges.
With the recent passing of the Economic Stimulus Package (HR
5140), 2008 promises to offer one of the best opportunities
to start-up a farm, and for existing farms to build the infra-structure
of their farming operation or to expand breeding herds. The
new law includes two tax incentives that would allow a much
larger write-off for alpacas and llamas and other depreciable
property purchased and placed in service during 2008. This
provides an additional incentive for people to invest in more
alpacas and llamas for showing and breeding as part of their
farm business activities.
You may be familiar with the post-911 Economic Recovery Package
after which this stimulus package was modeled. Unlike the
current legislation that lasts only 12 months, its predecessor
lasted over 24 months. Both raised the Section 179 “expensing”
limit. In 2001 the Section 179 increased from 25,000 to 100,000,
with the phase out ceiling of 400,000 to use this Section
179 deduction. For 2008, the Section 179 limit has increased
to 250,000 and the phase out ceiling has doubled to 800,000.
Once total purchases of alpaca or llama breeding stock, and
other depreciable property during 2008 reaches 800,000, the
expense allowance goes down one dollar for each dollar spent
on eligible property over 800,000. This is of great benefit
to alpaca and llama owners. To illustrate the expensing allowance,
assume an alpaca business purchases 700,000 of depreciable
property in 2008, including 600,000 for alpacas. That business
can write off 250,000 on its 2008 tax return and depreciate
the balance. The purchases may also be eligible for the Bonus
Depreciation.
Both pieces of legislation added a 50% Bonus Depreciation
for new property, which means the original use of the alpaca
or llama must begin with the purchaser. Thus, the purchase
of unproven males as well as maiden females, bred or unbred,
qualify for the 50% Bonus Depreciation. With a class of assets
like alpacas and llamas that are typically depreciated over
five years, that comes to 60 to 65% depreciation in the first
year, based on which method of depreciation you use. There
is no limit on the amount of bonus depreciation that can be
taken, as there is with the Section 179 expense deduction.
Keep in mind this Bonus Depreciation applies to other classes
of assets that are depreciated for longer periods of time
such as trucks, trailers and tractors. The bonus depreciation
applies to “20 year” barns, where the Section 179 is limited
to single purpose agricultural structures.
Why is this such a significant factor for alpaca and llama
businesses? Let’s look at the impact the post 911 Economic
Recovery Act had on these industries. At Star Events’ 2004
Spring Fling Auction held at WoodsEdge Wools Farm, a herd
sire sold (Dom Lucillio consigned by Rick and Ann Evans of
Enchantment Alpacas) for 400,000 to Ernest and Barbara Kellogg
of Double O Good Alpacas, setting a new world record. Seven
individual farms were bidding on Dom Lucillio and all expressed
the same sentiment ... “I can afford to spend more when I
can immediately expense 125,000 of this purchase.”
Most of them knew that incentive was set to expire at year-end.
Further, two of the seven bidders were brand new to the industry,
realizing the significant advantage to getting started in
the alpaca business with these tax benefits. One of those
two spent over one million dollars that year in alpaca bloodstock
alone to set up their new operation.
It is important to meet with your financial advisors, prefer-ably
those with experience in farm taxes, as quickly as possible
to fully understand how this act can positively affect your
bottom line, strengthen your market position, and help you
sell animals. The benefits of this Economic Stimulus Package
are set to expire December 31, 2008. 2008 can potentially
be the best year ever if we as breeders actively seek to educate
new prospects about this unique opportunity to start, build
and expand their farming operation. Supply is available, now
it’s up to all of us to create new demand.
To learn more about how you can benefit
from the HR5140 Economic Stimulus Package, visit www.alpacasllamaswoodsedge.com
and register
for one of our free educational seminars dedicated to
helping you succeed in farming, held at WoodsEdge throughout
the year, or contact us for dates and topics at (609) 397-2212.
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