Investing

WABA members all love spending time raising our alpacas, but we also raise alpacas to make a profit. If you are considering raising alpacas for profit, the good news is that the alpaca industry in North America is a growing business, allowing alpaca ranching to be a profit-making operation. In addition, many expenses associated with raising alpacas are considered deductions from your income for tax purposes.

FINANCIAL ADVANTAGES OF ALPACA RANCHING
The number of alpacas in North America is currently limited and the demand for alpacas exceeds the current supply. The prior suspension of import restrictions on alpacas has now been closed. As a result, alpacas are expensive livestock. However, as long as the demand exceeds the supply, prices are not expected to drop significantly. Therefore, investing in alpacas should be financially gratifying far into the future. An alpaca owner has the potential to earn income from the sale of animals. The purchase price of a breeding female may be recovered in one to two years through the sale of her offspring. Annual fiber sales help offset feed and animal care expenses. Income may also be earned from breeding fees, the sale of alpaca products and boarding alpacas from other farms. A farmer can also purchase several alpacas and allow the herd to grow over time without paying income tax on its increased size and value. In contrast, the interest from investing in a CD is taxable each year and the CD cannot be depreciated. National and regional associations also provide strong marketing support for small and large alpaca ranchers alike.

TAX ADVANTAGES
Raising alpacas may qualify your land for agricultural property tax deferral. Many alpaca farm expenses and improvements are either direct tax deductions or amortized (depreciable) deductions. Such improvements also often increase the value of your property. Some expenses you can deduct include:

• Feed, fertilizers, animal supplies and vet care
• Farm repair and maintenance, fuel and oil
• Interest, taxes and insurance
• Breeding fees
• Educational expenses (to improve your farming expertise)
• Advertising and marketing expenses
• AOBA and other association dues
• Vehicle mileage for all farm business

Some expenses you can depreciate include:

• Purchased breeding stock may be depreciated over seven years. If you borrowed to buy the breeding stock, the interest is fully deductible from your income as well.
• Capital improvements, such as barns, fences, ponds, driveways and parking lots, can be amortized over their useful life.
• Equipment, such as tractors, pickups, trailers and scales, each has an appropriate schedule for depreciation.

NOTE: Tax laws are complicated and change frequently. WABA recommends consulting with a tax professional or licensed CPA for details on income tax advantages specific to your operation. A very helpful publication, The Farmers Tax Guide (#225), can be obtained from the local IRS office.