The One Big Beautiful Bill Act: What It Means for Horsemen at the Track and the Farm
In the paddock at Keeneland. Photo by Kristyn Whitican.
The recently passed One Big Beautiful Bill Act brings major changes to the tax code that directly impact horsemen, breeders, and farm owners. While some provisions are immediate, others phase in over time. Below is a breakdown of the key provisions horsemen should understand as they plan for purchases, sales, and everyday operations.
1. Bonus Depreciation for Horses and Assets
One of the biggest changes is the new 100% bonus depreciation rule. Any eligible asset, including horses, placed in service qualifies for a full write-off in the year of purchase. However, the timing is crucial:
100% depreciation applies only if the purchase agreement is dated January 19, 2025, or later.
Purchases made earlier in 2025 qualify for only 40% bonus depreciation.
This distinction will have practical consequences at auctions. For example, horses purchased at the 2025 Keeneland January Sale will likely only be eligible for 40% bonus depreciation since the sale concludes before the January 19 effective date. Horsemen who plan to make large purchases later in the year may benefit more from the expanded 100% deduction.
A key difference from prior law is that 100% bonus depreciation is now permanent. Previous versions of the tax code allowed full expensing only temporarily, with scheduled phaseouts. Under the new Act, the 100% option remains available indefinitely.
It’s also important to understand that bonus depreciation is optional. Property can still be depreciated according to the normal schedules (for example, a 3-, 5-, or 7-year recovery period). Choosing between immediate expensing and spreading depreciation over several years depends on your specific tax situation. For some horsemen, immediate deductions make sense; for others, smoothing expenses over time may provide more consistent tax benefits. Consulting a tax professional is critical to making the best decision.
2. Spreading Capital Gains from Farm Sales
Another significant provision allows horsemen to spread capital gains from the sale of a farm evenly over four years.
Traditionally, selling a farm triggered recognition of the entire gain in the year of sale—often pushing sellers into higher tax brackets. Under the new law, gains can now be reported in four equal installments over four consecutive tax years.
Example:
If you sell a farm in 2025 with a $1.2 million taxable gain, instead of recognizing the full $1.2 million in 2025, you could report $300,000 per year from 2025 through 2028. This reduces the risk of being pushed into higher brackets in a single year, potentially lowering total tax liability and easing cash flow management.
3. Exemption of Income Tax on Overtime Pay
The Act also exempts overtime pay from federal income taxation. For horsemen and farm employees, this could provide significant savings.
Overtime wages will still be subject to Social Security and Medicare payroll taxes, but federal income tax will not apply.
The exemption applies only to the overtime portion of wages, not to base pay. Regular hourly or salaried income continues to be taxed as usual.
In addition, the exemption is capped at a set annual amount of overtime pay (the IRS will provide guidance on the exact threshold each year). Once that amount is exceeded, additional overtime wages are taxed normally. In 2025, the amount of the overtime pay exemption limit is $12,500 for single filers and $25,000 for MFJ filers.
There are also income limits: the exemption begins to phase out once total adjusted gross income exceeds certain levels, reducing the benefit for higher‑earning taxpayers. The income phase out at a Modified Adjusted Gross Income (MAGI) of $150,000 for single filers and $300,000 for joint filers.
The maximum deduction amount is tied to both the annual cap on exempt overtime and the taxpayer’s overall income eligibility. For example, a worker might be able to exclude up to $10,000 in overtime from federal income tax, but if their adjusted gross income is above the phaseout threshold, that exclusion will shrink or disappear.
This means workers with moderate earnings stand to benefit the most, while high‑income taxpayers may see little or no advantage.
This provision especially benefits trainers, grooms, exercise riders, and farm workers who often work beyond standard hours during race meets, foaling seasons, or sales prep.
Employers should adjust payroll systems to ensure overtime pay is classified correctly, as only properly documented overtime hours qualify.
This change effectively raises take-home pay for workers in the industry without increasing gross wages, though horsemen and employees will need to track how much of their overtime is covered by the exemption and whether income limits affect their eligibility.
4. Higher 1099 Thresholds
Starting in 2026, the threshold for issuing a Form 1099 rises from $600 to $2,000.
For horsemen, this means fewer reporting obligations for smaller vendor payments. Routine payments under $2,000 to blacksmiths, small contractors, or part-time help will no longer trigger a reporting requirement. This threshold applies to the total payments made to a single vendor or contractor in a calendar year. In other words, if you pay a vendor $500 on four separate occasions during the year, you’ve paid $2,000 total, which triggers the reporting requirement.
This reduces administrative burden, but it also means vendors may need to pay closer attention to their own recordkeeping since fewer 1099s will be sent.
5. Hobby Expense Deduction Eliminated
The Act eliminates the ability to deduct expenses from activities classified as hobbies.
Previously, horsemen who engaged in racing or breeding without demonstrating a profit motive could deduct expenses up to the amount of hobby income. That offset is now gone. Income from hobby activities remains fully taxable, but related expenses are no longer deductible at all.
This makes it more important than ever for horsemen to establish that their operations are bona fide businesses. The IRS will look for:
Evidence of intent to make a profit
Proper bookkeeping and separate accounts
Marketing and business planning efforts
A track record (or reasonable expectation) of profitability
Without these, operations could be reclassified as hobbies, leaving horsemen paying tax on gross receipts without the ability to deduct feed, vet bills, training, and other major costs.
Final Thoughts
The One Big Beautiful Bill Act reshapes the financial landscape for horsemen. The chance to fully expense horse purchases—now permanently available—offers powerful tax planning opportunities. At the same time, spreading out farm sale gains and the exemption of overtime pay provide meaningful relief. However, the elimination of hobby expense deductions and the timing nuances of bonus depreciation demand careful planning.
Horsemen should review their upcoming purchases, consider how they structure operations, and consult with tax professionals to maximize the benefits—and avoid the pitfalls—of these sweeping changes.
