Tax Advantages & Investment Returns of

Alpaca Livestock

Raising alpacas is a wonderful and rewarding lifestyle with some very attractive tax advantages. If you are raising alpacas for profit, the expenses associated with this activity are deductions from your income for tax purposes.

Tax write-offs can be one of the major financial benefits of alpaca ranching. However the following should apply:

• You must operate the ranch in a business like manner (i.e., appear to be trying to make a profit).
• You should have an organized business plan and be able to justify your business decisions.
• You or your spouse must be actively involved in the industry.
• You must have adequate bookkeeping methods.

What can be Deducted?

Farm expenses and improvements are either direct deductions or amortized (depreciable) deductions. Some of these expenses include:

• Feed, fertilizer, chemicals and vet care;
• Farm repairs and maintenance, fuel and oil;
• Interest, taxes and insurance;
• Breeding fees;
• Educational expenses to improve your farming expertise;
• Advertising and farm publications;
• AOBA and other association dues;
• Vehicle mileage for all farm business. This can include enjoyable trips to breeder conferences and alpaca ranches.

What can be Depreciated?

• Purchased breeding stock may be depreciated over 7 years. (For example, you purchase two pregnant females for $30,000. You could deduct $30,000/7 years = $4,286 from your income in each of the next seven years. If you borrowed money to buy the breeding stock, the interest is fully deductible from your income as well.)
• Capital improvements such as barns, fences, pond construction, driveways, and parking lots can be expensed over their useful life. Equipment such as tractors, pickups, trailers and scales each have an appropriate schedule for depreciation.
• $17,500 of depreciable expenses may be directly expensed in one year under the IRS "Section 179" allowance.

Other Financial Advantages of Alpaca Ranching

• Raising alpacas may qualify your land for agricultural property tax deferral.
• Improvements to facilities not only are deductible expenses, but increase the real value of your property.
• The purchase price of a breeding female may be recovered in one to two years from the sales of her offspring. Annual fiber sales help offset feed and maintenance expenses.
• Sales of outside breedings to a herdsire are another source of revenue.
• A small farmer can purchase several alpacas and allow the herd to grow over time without paying income tax on its increased size and value. In contrast, for an investment in a CD, interest earned during the year would be taxable. In addition, the CD could not be depreciated.

Please Note:

Because the tax laws are complicated and change frequently, we recommend consulting with a tax professional or licensed CPA for further details on income tax advantages. This article is provided for information purposes only. A very helpful IRS publication (#225, entitled The Farmers Tax Guide) can be obtained from your local IRS office.