2026 Tax Update: H.R. 1 Provides Tax Advances for Equine Professionals and Operations

H.R.1, President Donald Trump’s “Big Beautiful Bill,” Provides Tax Advances for Equine Professionals and Operations.

Story by the American Horse Council; Photography by Dan Dry. – provided by AQHA.

H.R. 1, also known as the “Big Beautiful Bill,” presents equine businesses with several advantages, including opportunities for bonus depreciation, relief from estate taxes, deductions for tip income, and options for the sale of farmland. However, it also introduces a set of new obstacles, such as IRS processing delays, heightened identity verification requirements and the gradual elimination of certain incentives.

While the bill revives and expands provisions from the 2017 Tax Cuts and Jobs Act, its rollout was hindered by IRS operational hurdles that include staffing shortages, leadership changes, budget constraints and the 43-day government shutdown that began October 1.

Given these changes, now is the ideal moment for individuals and businesses to review their operations, refresh compliance protocols and consult with experienced tax advisers. Remaining proactive, updating internal procedures and seeking expert advice will be crucial for successfully adapting to the shifting tax environment.

Bonus Depreciation Returns 

H.R. 1 brings back 100% bonus depreciation, giving equine businesses a powerful tax advantage. For qualifying property purchased after January 19, 2025, you can deduct the full cost in the year you put the asset into service, reversing the previous rule that capped deductions at 60% in 2024. This covers racehorses, breeding stock, farm equipment and specialized veterinary tools, allowing operations to claim immediate tax savings and have money for reinvestment.

For instance, a racing stable buying yearlings in 2026 or a breeding farm upgrading equipment can deduct all costs up front, boosting cash flow. Even small facilities benefit, whether they’re installing new ventilation systems or fencing. Tax professionals should help clients identify eligible purchases and keep thorough records. Timing is important: assets must be acquired and placed in service after January 19, 2025, so accelerating purchases could increase savings.

Despite ongoing IRS challenges, bonus depreciation gives equine businesses a clear path to immediate tax relief and financial growth.

Farm Sales and Installment Gains 

H.R. 1 introduces an installment option for capital gains taxes on farmland sales to qualified farmers, giving long-term equine landowners a way to manage taxes and transition property. Sellers, including individuals, trusts or entities, can spread capital gains taxes over four equal annual payments if the land was used for agriculture or rented to a qualified farmer for at least 10 years before the sale and stays restricted to agricultural use for 10 years after.

This helps equine landowners with pastureland, training facilities or breeding operations. For example, a retired trainer who leased land to a boarding business can now sell and defer taxes over four years if the land stays agricultural. Family horse farms can use this option to pass land to the next generation with deed restrictions or easements.

The provision promotes farmland preservation, supports succession planning and encourages sellers to transfer land to active farmers instead of developers. Equine professionals may find more chances to buy land under favorable terms. Sellers should maintain clear documentation and properly record agricultural covenants, as IRS guidance may evolve.

Overall, the installment option supports agricultural continuity and offers a practical tool for legacy planning in the equine industry.

Overtime and Tip Income Deductions 

Tipping is common in the equine industry–grooms, barn managers and freelance farriers often receive extra pay for outstanding work. H.R. 1 creates a new federal tax deduction of up to $25,000 for “qualified tips” reported on W-2, 1099-K, 1099-NEC or voluntarily disclosed on Form 4317. This applies to tax years starting in 2025 and ending in 2028.

To qualify, the tips must be received in an occupation that “traditionally and customarily” received tips as of December 31, 2024. The IRS issued a proposed rule on September 22 that identifies occupations customarily and regularly receiving tips, with a public comment period that ended on October 22. With the support of AHC’s Regulatory Committee, we submitted comments asking that the classification category “TTOC 506: Pet Caretakers” instead be labeled “TTOC 506: Pet and Livestock Caretakers.” This potentially covers many service roles in the equine industry, such as barn staff, grooms, show assistants and hospitality workers at events. Not all roles qualify, and high earners may see the benefit phase out.

The Treasury Department and IRS have released draft tax forms for the upcoming filing season that include new deductions for tipped income and overtime pay. They also announced plans for transition relief for both “no tax on tips” and “no tax on overtime” in 2025. However, uncertainty caused by the government shutdown has left stakeholders waiting for more details on what that relief will entail.

Key considerations for equine industry professionals:

1. Documentation is essential. Tips must be properly reported to qualify. Cash tips should be logged and disclosed, while electronic tips processed through platforms like Venmo or PayPal may be reported via 1099-K or 1099-NEC.
2. Know your occupation status. Workers must be in a role that customarily received tips before the cutoff date. For example, a groom at a show barn likely qualifies, while a jockey or veterinarian may not.
3. Watch your income thresholds. The deduction begins to phase out for individuals earning more than $150,000 and for joint filers earning more than $300,000. Those above these limits may not benefit from the new provision.
4. Voluntary reporting matters. If tips are not reported by an employer or payment platform, workers can still disclose them voluntarily using IRS Form 4317 to potentially qualify for the deduction.
5. For equine businesses, it’s important to educate staff on proper tip reporting and ensure payroll systems are equipped to handle separate tip entries. For workers, keeping a daily log of tips received and understanding how they’re reported can make a significant difference come tax time.

Casualty Losses, Disaster Relief 

Casualty and theft loss deductions have long been a complex area of tax law, particularly for agricultural and equine businesses that face unique risks from natural disasters, theft and property damage. H.R. 1 expands relief. Starting in 2026, losses from state-declared disasters will also qualify for deductions, not just federally declared events. The same reduction thresholds ($100 or $500 per incident) apply, but more businesses can now claim deductions for damages from local disasters.

Operations should keep detailed records of losses, disaster declarations and property values, as thorough documentation is required by the IRS. For tax professionals, these expanded rules open new planning opportunities to help clients recover when disaster strikes.

The Treasury Department and IRS have released draft tax forms for the upcoming filing season that include new deductions for tipped income and overtime pay.

Be sure to keep yourself informed on tax changes and how they can benefit your business, as there are a number of changes that could be advantageous but others that could serve as challenges.

Betting Losses 

Horse racing and betting have new tax rules under H.R. 1, requiring careful recordkeeping. Starting in 2026, you may only deduct up to 90% of betting losses, and only if you have winnings that year. Previously, deductions could match the full amount of winnings. Travel and entry fees are included in loss calculations, but the 90% cap applies.

Equine professionals, including syndicate members and handicappers, must track wins, losses and expenses more closely. For example, if you win $10,000 but lose $12,000, only $10,800 may be deducted.

Legislation has been proposed to restore the full deduction, but it has not yet passed.

Estate Tax Planning 

For many in the equine world, the farm is a family legacy. Planning for succession is critical for multi-generational breeding operations, training facilities and ranches. Under H.R. 1, starting in 2026, the estate and gift tax exemption rises to $15 million per filer, indexed for inflation, which is a significant increase from the current $13.6 million. Families can transfer land, livestock, equipment and business interests without triggering federal estate taxes, benefiting high-value operations.

Joint filers can shield up to $30 million, creating new opportunities for trusts, lifetime gifts and restructuring. However, planning for liquidity is still important, as state estate taxes may apply and heirs may need cash for ongoing operations. Reviewing estate plans now helps preserve legacies and protect assets for future generations.

Clean Energy Credit Phase-Out 

Sustainability is growing in the equine industry, with businesses investing in solar panels, geothermal heating and energy-efficient upgrades. H.R. 1 is phasing out key clean energy tax incentives, so timing is critical. The residential clean energy credit ends after December 31, 2025, and the commercial energy efficiency credit ends for projects starting after June 30, 2026. Equine businesses planning renovations, such as solar panels, HVAC upgrades or energy-efficient windows, need to act quickly to secure credits.

Smaller improvements, like upgrading barn office windows or lighting, may qualify if completed on time. Some state and local programs may still offer benefits after federal incentives end.

1099-K Reporting Thresholds 

Digital payments are increasingly common in equine businesses, from online horse sales to collecting training fees. H.R. 1 clarifies federal Form 1099-K reporting thresholds.

Under federal law, third-party platforms like PayPal, Venmo, Stripe and Square must issue a 1099-K if over $20,000 is received and more than 200 transactions occur in a year. This applies to payments for goods and services, but not personal transfers. Many states require reporting at much lower thresholds, sometimes as little as $600.

For equine professionals, this can create confusion and unexpected reporting obligations. A breeder selling foals online or a trainer offering virtual lessons may receive a 1099-K if thresholds are met. It’s crucial to distinguish between business and personal transactions and to track income independently.

To avoid surprises, equine businesses should:

1. Review platform policies and understand how payments are categorized.
2. Track income independently, even if a 1099-K is not issued.
3. Consult state-specific rules, as thresholds vary and may change annually.
4. Separate personal and business accounts to ensure accurate reporting and avoid commingling funds.

Equine professionals, including syndicate members and handicappers, must track wins, losses and expenses more closely.

Identity Verification and Filing Options 

To fight fraud and improve security, H.R. 1 introduces stronger identity verification requirements, affecting how businesses, especially those with seasonal or foreign workers, manage tax filings. These changes matter for equine operations, which often rely on temporary labor during busy seasons.

Employers must ensure all worker documentation is accurate and compliant with federal standards, including verifying social security numbers and work authorization before filing W-2s or 1099s. Equine businesses should be proactive in onboarding and payroll processes. For example, a breeding farm hiring seasonal workers from abroad must follow stricter verification to avoid delays or penalties. Failing to comply could result in rejected filings, higher audit risk or fines.

H.R. 1 also creates a task force to consider alternatives to the IRS’s direct file system, suggesting future changes in how small businesses, including equine operations, may file taxes. This could improve accessibility but may require adjustments in software, training or workflow.

Equine professionals should begin preparing now by:

1. Reviewing and updating hiring procedures to include enhanced identity checks.
2. Ensuring payroll systems can accommodate new verification requirements.
3. Monitoring IRS announcements for updates on direct file alternatives and pilot programs.
4. Consulting with tax advisors to ensure compliance and avoid disruptions during filing season.
5. With IRS staffing shortages and system upgrades, informal guidance may be the main information source for now. Staying informed and keeping thorough records will be essential.

H.R. 1 also creates a task force to consider alternatives to the IRS’s direct file system, suggesting future changes in how small businesses, including equine operations, may file taxes.