Things to Know Before You Donate: Holiday gift-giving and tax deduction tips in 2023
By: Brigid Shea, American Horse Council
We’re moving into the holiday gift-giving season to be followed shortly by the tax season. One season is fun. The other? Not so much. However, each season holds opportunities for everyone. Whether you’re searching for last-minute tax deductions for 2023, or just feeling charitable with the holiday season, the American Horse Council (AHC) shares some holiday gift-giving and tax deduction tips in 2023.
Rehoming or Gifting of Personal Horses
Are you thinking about rehoming a horse, whether for a second or third career, via donation to a school or therapeutic program?
You can earn a tax deduction, while helping a new generation of riders, by donating a horse to a qualified charitable organization. Many schools with equestrian programs and therapeutic riding organizations rely on donations of horses for their programs. The decision to donate your horse to a charitable organization can be rewarding for you, your horse, and the charity. The AHC recommends you vet out the programs you’re looking to donate by making personal visits and discussing with other horse owners who have done the same.
Financial Donations or Contributions
Year-end donations and celebrations of Giving Tuesday will see many nonprofits asking followers on social media for donations to help fulfill needs that funding lacks. According to
Charles Schwab, charitable deductions can reduce your taxable income, if you itemize your taxes. However, overall deductions for donations are usually limited to 50% of your adjusted gross income (AGI).
What’s in the Works
The U.S. government is working to help horse owners with their potential income and year-end taxes. There is hope for the adoption of legislation introduced by Representative Andy Barr (R-KY-6) and Congressman McGarvey (D-KY-3) to incentivize investment in the horse racing industry. The
Race Horse Cost Recovery Act of 2023
would make the three-year depreciation schedule permanent for racehorses, regardless of their age when put into service. Currently, Congress must reauthorize this provision in the tax law on an annual basis. Their other bill, the
Racehorse Tax Parity Act
, would reduce the holding period for equine assets to be considered long-term capital gains. This puts them on a level playing field with other similar assets.
Regardless of the scenario, it is crucial to understand and apply the Internal Revenue Service’s (IRS) requirements and guidelines:
Tips for Donations
For a charitable donation of a horse, make sure you are donating to a qualified charity. To check the status of a charity, use the IRS’s
Tax Exempt Organization Search
tool. Then determine the fair market value of your horse. Taxpayers seeking a deduction of more than $500 must also complete and file with their tax return
IRS Form 8283
Form 8283 requires the taxpayer to disclose:
- how the horse was acquired,
- the date of acquisition (approximate), and
- the cost basis of the horse.
In addition, if the deduction is greater than $5,000, the taxpayer must obtain a written appraisal by a qualified appraiser.
Looking to maximize your tax deduction? The horse must be used by the receiving charity in connection with the charitable purpose for which it was formed. If a horse is donated to a charity that, in turn, uses the horse in a manner unrelated to its charitable purpose, the donor taxpayer can deduct only their basis in the horse. (The basis in a homebred horse would be zero.)
Always establish a paper trail.
Keep records of:
- Name and address of the charity
- Date of the donation
- Location of the donation
- Description of the horse
- Fair market value
- Method used to determine value
- Terms of agreement relating to use or disposition
Request a written receipt.
Ask the charity for a tax receipt if the horse is worth more than $250 but less than $5,000.
Do the math.
There are many factors affecting the amount a taxpayer can receive as a deduction. Section 170(e) of the Internal Revenue Code lists these exceptions. Learn more
here
.
The American Horse Council strongly recommends consulting with a qualified tax professional.
This commentary is provided for general informational purposes only.
Please contact info@horsecouncil.org for assistance.
For more information about the American Horse Council, visit
www.horsecouncil.org
For more information about the United Horse Coalition, visit
www.unitedhorsecoalition.org