Investment Potential
 Alpacas are widely known as "The world's finest livestock investment" for the excellent lifestyle that raising them offers, but especially for the possibility of excellent profits in the sales of offspring from your herd as well as great tax advantages.
An alpaca rancher with a small herd on a small acreage can expect to harvest his animals' fleeces and sell their offspring profitably. The current alpaca industry is based on the sales of quality breeding stock, which commands premium prices. The value of alpaca fleece and finished products made from that fleece is the economic underpinning of the future market for alpacas. Alpaca sales values have been excellent and remained steady since they were first imported to the US in significant numbers in the 1980's. Since then, the US registry (ARI) has been closed to new imports, effectively protecting the US market from growing too quickly or getting flooded with overseas imports. Alpacas continue to be in high demand as these animals are scarce, unique, and the textiles produced from their fleeces are known in the fashion centers of Tokyo, New York, Paris, and Milan.
 Factors that influence individual alpaca prices include color, conformation, fleece quality and quantity, age, and gender. Females sell for more money on average than males, but herd sire quality males have historically commanded the highest individual prices.
Many breeders start with several breeding age females and perhaps one male. Other new breeders may elect to start with several young animals or a breeding pair. There is an approach suitable for your level of interest and financial position. Alpacas reproduce almost every year, and about one-half of their babies are females.
Alpacas are also fully insurable against theft and mortality. Insurance can be purchased for your stock regardless of age. Average insurance rates are 3.25% of the value of the animal, or $325 for every $10,000 of insurance.
TAX ADVANTAGES
 Alpaca ownership offers excellent tax advantages through depreciation, capital gains, and for active hands-on owners, the benefit of off-setting ordinary income from other sources with expenses from a ranching business. Recent changes in tax law provide increased benefits to alpaca farms, including special 50-percent depreciation allowance for 2008 purchases and an increase in the small business expensing limitation for tax years beginning in 2008 (learn more). Those considering entering the alpaca industry should engage a reputable accountant for advice in setting up their books and determining the proper use of the concepts discussed here. The goal of this discussion of IRS rules is to provide guidelines for discussion with your accountants and financial advisors so that you can be more conversant in the issues of taxation as they relate to raising alpacas. A list of links to some relevant IRS publications and forms are provided below.
Writing Off Expenses
Raising alpacas at your own ranch, in the hands-on fashion, can offer the rancher some immediate tax advantages. If alpacas are actively raised for profit, all the expenses attributable to the endeavor can be written off against your income. Expenses include feed, fertilizer, veterinarian care, and the like. In addition, certain eligible property may be written off in the tax year of purchase, rather than depreciated over the asset's useful life. Such property includes:
|
Increased Expensing Limit
Under the new rules of IRS Section 179, expensing now is at the base level of $250,000, up from the previous limit of $25,000. In addition, the investment limitation also has been increased to more than $800,000. more information
|
• Machinery and equipment
• Furniture and fixtures
• Most storage facilities
• Single-purpose agricultural or horticultural structures
These expenses can shelter current cash flow from tax, which can be especially helpful to beginning alpaca farmers as they are building their business.
Capital Improvements
|
50% Special Depreciation Allowance!
Under new tax law, a taxpayer is entitled to depreciate 50 percent of the adjusted basis of certain qualified property during the year that the property is placed in service.
|
Capital improvements to the active or hands-on alpaca breeder's ranch can also be written off against income. Barns, fences, pond construction, driveways, and parking lots can be expensed over their useful life. Equipment such as tractors, pickups, trailer, and scales each have an appropriate schedule for write-off. The depreciation schedule for each asset class varies from three years to 40 years.
There is also the newly enhanced direct write-off (expense) method known as Section 179 (learn more) that allows a substantial deduction each tax year for newly acquired items that are normally long-term depreciable assets. While this is subject to some limitations, it is widely utilized by small ranches to accelerate expense, if appropriate for the particular tax situation. Owners currently in high tax brackets often use it when changing their lifestyle to a lower income level over several years.
Tax-deferred Wealth Building
Alpaca breeding allows for tax-deferred wealth building. An owner can purchase several alpacas and then allow the herd to grow over time without paying income tax on its increased size and value until he or she decides to sell an animal or sell the entire herd.
In summary, the major tax advantages of alpaca ownership include the employment of depreciation, capital gains treatment, and if you are an active hands-on owner, the benefit of off-setting your ordinary income from other sources with the expenses from your ranching business. Wealth building by deferring taxes on the increased value of your herd is also a big plus. It pays to keep your eye on the tax law changes instituted by Congress. And remember that tax laws are complex. Reputable tax professionals should be consulted to best ensure compliance and to take best advantage of the tax laws.
Links to Useful Tax Information:·
IRS article on the 2008 Stimulus Act
IRS section 179 Deductions
Publication 225 IRS Farmers Tax Guide
Publication 946 How to Depreciate Property
Financial Opportunities
An alpaca rancher with a small herd on a small acreage can expect to harvest his animals' fleeces and sell their offspring profitably. The value of alpaca fleece and finished products made from that fleece is the economic underpinning of the future market for alpacas. Breeders outside of South America are beginning to organize fiber co-ops for the commercial processing of the fleece. Domestic fiber is often sold to cottage industries that revolve around hand spinning and weaving. Each animal will produce around three to ten pounds of fleece a year. Alpaca ranchers sell their fleece in a variety of ways including raw fiber, washed and carded fiber, yarns, and finished products, with lucrative margins. Profits or fiber production vary based on each farm's model for fiber sales.
The current alpaca industry is based on the sale quality breeding stock, which commands premium prices. Female alpacas usually begin breeding at between 15 months and 18 months of age, while most males can successfully impregnate (or "settle") a female at about three years. The females produce one baby per year (twins are uncommon) during a reproductive life about 10-12 years.
Factors that influence individual alpaca prices include color, conformation, fleece quality and quantity, age, and gender. Females sell for more money on average than males, but herd sire quality males have historically commanded the highest individual prices. Breeders often prefer one alpaca color to another, however the parents' color does not necessarily guarantee a cria of the same color. There are many accepted theories regarding alpaca color heritability, and more research is needed to further our understanding of this issue. Of more importance to most breeders is the overall physical soundness, or "conformation" of the animal. In addition to color, fleece, density, uniformity, fineness, luster and staple length will also affect value. Well-conformed alpacas with superior fleece characteristics sell for higher prices.
Many breeders start with several breeding age females and perhaps one male. Other new breeders may elect to start with several young animals or a breeding pair. There is an approach suitable for your level of interest and financial position. Alpacas are much like diamonds. The market pays a premium for the finest examples of the breed, and a beauty is also in the eye of the beholder.
Tax-deferred wealth building is another "alpaca advantage". As your herd grows, you postpone paying income tax on its increasing value until you begin selling the offspring. Most breeders elect to sell all or some of the annual offspring production for practical reasons, such as recovering their initial cash flow, acreage and building limitations, and time constraints.
Financing available at Willow Bend Alpaca Farms!
We Accept Most Major Credit Cards
Want to see more?
Let us know what you are interested in learning and we will work to make it happen
Alpacas are also fully insurable against theft and mortality. Insurance can be purchased for your stock regardless of age. Average insurance rates are 3.25% of the value of the animal, or $325 for every $10,000 of insurance.
|
We accept Visa and Mastercard
for your purchases of alpacas or breedings.
