Rev. Rul. 66-368

Advice has been requested whether gains resulting from the sale of race horses are subject to the recapture of depreciation provisions of section 1245 of the Internal Revenue Code of 1954.

Section 1245(a)(3) of the Code defines `section 1245 property' as being `any property (other than livestock) which is or has been property of a character subject to the allowance for depreciation * * *.' Section 1.1245-3(a)(4) of the Income Tax Regulations defines the term livestock, broadly, as including all `horses * * * irrespective of the use to which they are put or the purpose for which they are held.'

Th definition of `section 1245 property' and the definition of `section 38 property' which is contained in section 48(a) of the Code does not include livestock. See sections 1245(a)(3) and 48(a)(6) of the Code which expressly exclude livestock from their ambit. Furthermore, the applicable regulations, sections 1.1245-3(a)(4) and 1.48-1(1), respectively, define the term `livestock' identically.

Senate Report No. 1881, 87th Congress, C.B. 1962-3, 707, 719 (on sections 38, 46-48) states that `* * * livestock (including race horses) are not to be eligible for the investment credit since they are not included in the category of property resulting in ordinary income (to the extent of depreciation deductions) at the time of sale.'

Accordingly, race horses are excluded from the definition of `section 1245 property.'