There are two ways to invest in alpacas. The active, or hands on method, where you actively raise your animals yourself for profit, and the passive, or agisted method, where you invest in the animals and someone else does the farming.
As a breeder you can depreciate a male or female alpaca used for breeding purposes over a five-year period. Breeding animals are considered a capitol asset, and as such, the first year in which alpacas are acquired, there is a "hyper" depreciation up to $100,000 that can be used to offset any source of earned income!
Income derived from the sale of capitol assets is usually taxed at a lower rate than that of income derived from other sources, such as regular earnings. Any expenses which you incur, such as veterinary care, feed bills, or any other costs associated with the raising of your alpacas are deductible. As an active breeder there is also the ability to depreciate tangible property, such as barns and fences, as well as breeding stock to be considered! During your start-up period your alpaca farm may generate taxable losses which may be used to offset taxable income from other sources. Alpaca breeding is an excellent way to accomplish tax-deferred wealth building. The small farmer or investor can purchase several alpacas and allow the herd to grow without paying income taxes on the increased value of that herd.
If you agist your alpacas, your tax advantages will vary from that of an active owner, but they will still be very attractive. The main difference will be that you will hold all of your expenses incurred in the raising of the alpacas to be used as deductions against your profit until such time as you sell the alpacas.
This is only a short, and by no means complete, summary of the tax advantages available to you as an alpaca breeder. The, IRS Tax Publication #225 is very helpful.
We strongly recommend that you consult an accountant or tax advisor who is familiar with breeding livestock and farming issues.
If you are one of the many people who are thinking of alpaca ownership, but cannot afford, or do not desire, to invest a large amount of money to start you may be one of the people for whom the purchase of pet quality, or fiber animals, is a good choice. It will give you a way to "try out alpacas" without a large financial commitment. You may want to agist, or board, your alpacas with an established alpaca owner for a while. This will give you a chance to find out if the raising of these wonderful animals is for you and if the lifestyle that these animals give us is one which you would enjoy. The fees are reasonable, usually only about three dollars per day and, of course, this would be a tax-deductible expense. Agisting also gives you the option of purchasing one alpaca at a time. Alpacas are herd animals and need to live with other alpacas; they can actually become very stressed if separated. That is why we strongly suggest the purchase of at least two if you are going to take them home to raise yourself. Many spinners and weavers find that the purchase of neutered male fiber animals is the answer to their desire for fiber of their very own to work with.
Some people may want to purchase one or two animals as a way to accumulate the funds required for the college education of their children. The purchase of just two breeding females is a good start toward that end. Given a ten year period those two original females can very conservatively grow into a herd of thirty or more alpacas! Of course, you may want to purchase a male to use as a herd sire, or you can take advantage of the many herd sire animals available for a stud fee. Again, if you don’t wish to take on the task of breeding your own animals agistment would be an excellent option for you.
There are several ways to accomplish the purchase of alpacas. We can provide financing plans at competitive rates up to five years. We also make shorter term financing arrangements.
The purchase of alpacas for investment is always a personal decision and we encourage you to investigate fully the many options open to you. There is always a risk involved in the purchase of any kind of livestock and alpacas are no exception. They are however, extremely hardy and easy to raise and they are 100% insurable for mortality and theft. Actually, we don’t know of a better animal to invest your money or your love in!
GREAT NEWS FOR ALPACA BREEDERS:
Congress passed a $350 billion tax cut, known as the Jobs and Growth Tax Relief Reconciliation Act of 2003. There are several provisions that may affect your net income as an alpaca breeder. The Small Business and Work Opportunity Act of 2007 extends the expanded benefits through 2012. The best news is that these allowances can be used to offset any other source of earned income.
Taxpayers can depreciate property on a class-by-class basis, i.e., over 3, 5, 7 ,10 years etc. This privilege, combined with the ability to claim any portion of the $125,000 first year expense allowance on both used and new assets, provides tremendous flexibility in tax planning.
New Capital Gain Rates
Special lower rate for taxpayers in the bottom two ordinary brackets drops from 10% to 5%. These new lower rates are effective for sales after May 5, 2003, and remain in effect through December 31,2012.
Section 179 First Year Depreciation Allowance
President Bush signed H.R. 2206, the Small Business and Work Opportunity Act of 2007, into law on May 25, 2007. The Act extends the expanded benefits of Section 179 through tax year 2010 and increases the maximum annual deduction from $112,000 to $125,000 for purchases made in 2007. The amount of annual cost additions that trigger a phase-out of the 179 deduction was increased from $450,000 to $500,000. This means the $125,000 limit is reduced by the amount by which the total cost of the property placed in service during the tax year exceeds $500,000. For a detailed description for the Section 179 deduction, see IRS Publication 225, "Farmers Tax Guide" Chapter 7.
Tax Year 2006 $108,000
Tax Year 2007 $125,000
Tax Year 2008 $125,000 + COLA
Tax Year 2009 $125,000 + COLA
Tax Year 2010 $125,000 + COLA
Tax Year 2011 $25,000
For 2004 through 2012, the annual amounts are to be adjusted for inflation. Up until recently, the Section 179 election was only allowed on originally filed tax returns. People who overlooked it were not allowed to claim it on amended returns. This new law allows the Section 179 expensing election to be claimed or revoked on amended returns for 2003 through 2012.
*** Please note: Check with a professional certified public accountant to make sure that you stay within the legal confines of the law and tax system.