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. It was amended for the 2008 tax year. 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 $250,000 for 2008 and is available thru 2010. If you purchase any amount up to $250,000 before year end you can claim the entire purchase price as a 179 deduction on your 2008 taxes. In addition, for 2008 only, special bonus depreciation is available. For farms making large capital investments in 2008, this is offers a huge benefit.

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 $250,000 worth of alpacas this year and that they can take another $250,000 deduction next year for additional qualifying assets. The following example takes into consideration IRS code section 179.

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 $250,000 worth of alpacas. This deduction is available for all taxpayers with an active business. 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 $250,000. 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:

You must have sufficient income to use the deduction. The income must be earned income to utilize the deduction. (Earned income includes wages & self employment income, but Social Security and pension income unfortunately do not qualify).

The unused portion of the deduction can be carried forward to subsequent years.

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

To benefit from the 179 deduction the tax payer can not place more than $800,000 of qualifying assets in service in the year that the deduction is taken.