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  1. #1
    Join Date
    Jan. 24, 2009
    Location
    Virginia
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    101

    Default Tax question: Is an outdoor arena depreciable?

    I have a small breeding operation that I run as a business. In 2010, we had the considerable expense of putting in an outdoor riding arena. I am wondering how to include that expense on schedule F. Is an outdoor arena depreciable? Can it be claimed as a Section 179 expense? Or should the individual contributors (excavation, heavy equipment rental, base material) to the overall cost of the arena be treated as regular expenses?



  2. #2
    Join Date
    Jun. 28, 2003
    Location
    KY, USA
    Posts
    1,962

    Default

    As long as you are a legitimate business, and the arena is used for the business, you'll probably need to depreciated it (I did).



  3. #3
    Join Date
    Jun. 23, 2004
    Location
    Fauquier County, VA
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    Default

    This might help:

    http://www.irs.gov/publications/p225/ch07.html

    I would have to ask my accountant but I think my arena is on a depreciation schedule.

    I don't think outdoor arenas would qualify as a Section 179 expense as in general improvements are excluded - except that agricultural fencing does qualify as a Section 179 expense. The ring itself, though, would appear to be classified as an improvement subject to depreciation.
    Roseknoll Sporthorses
    www.roseknoll.net



  4. #4
    Join Date
    Mar. 24, 2007
    Posts
    1,807

    Default

    We have a construction business in Canada and have a shop on our personal property.........we choose to put everything in our personal name.........and only deduct operating costs.....ie insurance, hydro, etc.

    Where we live if you own everything personally and it is your primary place of residence than there is no tax on the property when sold.......but if we had claimed the expense of the shop and it caused our property to increase or just the fact that property usually increases over time then when we sold we would have had to pay tax on the shop portion of the property including the land it sat on.

    Dalemma



  5. #5
    Join Date
    Aug. 14, 2004
    Posts
    7,540

    Default

    I think this is a question for a CPA familiar with horse businesses.



  6. #6
    Join Date
    Jan. 14, 2007
    Location
    Appalachian Mountains, Georgia
    Posts
    193

    Default

    Agree that we should get the actual IRS law from a CPA or tax attorney.

    My CPA put our outdoor arena on our depreciation schedule on a 15-year schedule. Similarly, we depreciated the building of our barn, subsequent renovations to our barn, broodmares, tractors & equipment under depreciation schedules of different lengths of time based on IRS guidelines. We started these depreciation schedules before we incorporated. After incorporation, we transferred some assets to the corporation and kept property assets (buildings, arenas, etc.) in our personal name, but lease those assets to the farming corporation.

    Best Regards,



  7. #7
    Join Date
    Feb. 7, 2002
    Location
    Ontario, Canada
    Posts
    805

    Default

    All the costs associated with constructing the building should be capitalized, then a percentage depreciated (expensed) on an annual basis.

    Capital assets, like buildings, are things with an enduring or future benefit to the business; however, there may be a few costs that would not have to be capitalized. Anything with a lifespan of a year or less, such as light bulbs that need to be replaced, are considered operating costs and can be expensed in the year they are purchased.

    Whether or not you want to hold the asset personally or through a corporation should be discussed with your accountant; likewise, you might want to consider incorporating an operating company to rent the building from you or the corporation who owns it.
    Sentinel Hill Farm
    Home of VDL Windsor H



  8. #8
    Join Date
    Jan. 24, 2009
    Location
    Virginia
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    101

    Default

    Quote Originally Posted by Rocky XVI View Post
    All the costs associated with constructing the building should be capitalized, then a percentage depreciated (expensed) on an annual basis.

    Capital assets, like buildings, are things with an enduring or future benefit to the business; however, there may be a few costs that would not have to be capitalized. Anything with a lifespan of a year or less, such as light bulbs that need to be replaced, are considered operating costs and can be expensed in the year they are purchased.

    Whether or not you want to hold the asset personally or through a corporation should be discussed with your accountant; likewise, you might want to consider incorporating an operating company to rent the building from you or the corporation who owns it.
    To clarify, it is an outdoor arena so there is no building. I have not even fenced it so there is no fence to depreciate. Constructing it cost quite a bit of money, but depreciating the costs seems odd since there is no physical structure.



  9. #9
    Join Date
    Jan. 24, 2009
    Location
    Virginia
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    101

    Default

    Quote Originally Posted by YankeeLawyer View Post
    This might help:

    http://www.irs.gov/publications/p225/ch07.html

    I would have to ask my accountant but I think my arena is on a depreciation schedule.

    I don't think outdoor arenas would qualify as a Section 179 expense as in general improvements are excluded - except that agricultural fencing does qualify as a Section 179 expense. The ring itself, though, would appear to be classified as an improvement subject to depreciation.
    Thanks for the link. I think you are correct, it may be depreciable as a land improvement but can't be expensed under Section 179. I'll check with my accountant about depreciation schedule.
    I am a bit nervous about depreciating it; I wonder if it will raise some sort of red flag with the IRS. It's such a big ticket item and there are no specific references to arenas being land improvements in the IRS regs.



  10. #10
    Join Date
    Sep. 8, 1999
    Location
    Libertyville, IL USA
    Posts
    4,108

    Default

    I am no accountant, but I am sure you will be fine, the red flags on this are no redder than any horse related expense/business in general. You must have a ring. You could get 40 people to testify to that.



  11. #11
    Join Date
    Jun. 23, 2004
    Location
    Fauquier County, VA
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    10,465

    Default

    Quote Originally Posted by myhorsehannah View Post
    Thanks for the link. I think you are correct, it may be depreciable as a land improvement but can't be expensed under Section 179. I'll check with my accountant about depreciation schedule.
    I am a bit nervous about depreciating it; I wonder if it will raise some sort of red flag with the IRS. It's such a big ticket item and there are no specific references to arenas being land improvements in the IRS regs.
    Check with your accountant. I cannot imagine that it would not qualify as an improvement but I am not a tax lawyer either
    Roseknoll Sporthorses
    www.roseknoll.net



  12. #12
    Join Date
    Aug. 14, 2004
    Posts
    7,540

    Default

    normally, any expenditure that is generated by normal business activity is deductible.

    The question is: do you need to capitalize it and expense it over x years, or can you write it all off in one year?

    this is a tax accountant question.



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