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These are just a few of the exciting tax advantages of alpaca ownership!
The Tax Benefits
How would you like to trim your tax liability? Alpacas, as well as other types of livestock, are the answer. Alpacas are by far, the easiest to manage ..... ask any large animal Vet who has worked with alpacas!!
You can choose to enhance your real estate, purchase animals, and deduct expenses directly against earned income. If you prefer to agist or board the animals, you can capture the expenses and cost of the animals against passive income now and 15 years into the future. Tax deferred wealth building is another benefit. Taxes are postponed on the increased value until you are ready to start selling the offspring.
Many alpaca breeders throughout the United States have recognized financial and personal gains. The rewards are many. Their initial investment has grown to a level that creates independence. Individuals have recognized that their current careers can be incorporated into alpaca breeding with positive results. Take for example the physician who has done extensive research into the Accoyo line of alpacas. He has been winning in the show rings and his progeny line is sought after before they are even born! As an added bonus, many of these same individuals will share their stories of how they begun and grew into today’s levels. The alpaca industry is full of many individuals willing to help you get started!
Raising Alpacas on Your Own Property
First you must establish that you are actively involved in the business and desire to make a profit. Alpaca ownership suggests you:
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Operate the farm in a business like manner
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Depend to some degree on income from your farm
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Calculate that losses are circumstantial and are beyond your control or are normal in the start up phase.
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Change your operations to increase profits
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Conduct operation as a business, not a hobby
Even if you are a passive investor you will still be allowed the following tax benefits. The only question remains as to whether you can take the deductions on a current basis.
Deductible Expenses
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Vehicle mileage for all ranch business
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Fees for income tax return
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Livestock feed
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Labor hired to run the ranch
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Breeding Fees
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Taxes and insurance
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Depreciation on animals
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Depreciation of real property such as barns and equipment
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Farm travel expenses
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Educational expenses
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Advertising
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Veterinarian care
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Boarding fees
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Farm fuel and oil
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Attorney fees
Also refer to Section 179 from the IRS that allows a substantial deduction each year for expenses.
Please note that once you have determined either a net income or loss, that amount is included on the tax return. It is either an addition to or a deduction from ordinary income. Losses can be carried back for 3 years and forward for 15 years. To deduct any loss, you must be at risk for an amount equal to or exceeding the losses claimed. The “Risk Factor” is
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The amount of money you contribute
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The amount of money you borrowed
The passive owner’s losses that are in excess of current income can be carried forward and taken against future income. Timing is the issue.
Tax Deferment
Alpacas in which you have cost basis can now be depreciated 50% or 100% for new stock!!!! Straight line or accelerated schedules allow for a percentage of the asset to be written off. Example: An alpaca is purchased for $20,000, depreciated 50% of its value and then resold for $20,000. There would be a gain for tax purposes of $10,000. Result = The adjusted cost basis is deducted from your sale price to determine gain or loss.
Capital Gain Treatment: The sale of breeding stock qualifies for capital gains treatment. Please note that alpaca offspring do not qualify for capital gain but rather income taxes.
When setting up an operation, always contact a tax accountant or attorney that understands the alpaca farming business. Rules can and always will change and it is vital to make sure you are laying out the best pan every year.
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