One of the many reasons that raising alpacas appealed to us was the tax advantage. We were raising sheep when we first investigated alpacas. There was no market for the wool - our shearer would dump it in the garbage. When we sold them, we had to include "you catch 'em" in the advertisement.

Because we are raising alpacas for income generation, we have already realized some very attractive tax advantages - all of the related expenses can be written off against our income. Those expenses include feed, veterinary care, fences, shelters and marketing. The actual cost of the alpacas can be depreciated.

We would recommend that all potential alpaca breeders retain an accountant for determining the use of these concepts. The Farmers Tax Guide, IRS publication #225, is available from IRS.

 

If you fail the three years of profit test, you may still qualify as a "for profit" enterprise if your intention is to be profitable. Some of the factors considered when assessing your intent are: 

* You operate your ranch in a business-like manner.
* The time and effort you spend on the operation indicates you intend to make it profitable.
* You depend on income from the ranch for your livelihood.
* Your losses are due to circumstances beyond your control or are normal in the start-up phase of ranching.
* You change your methods of operation in an attempt to improve profitability.
* You make a profit from ranching in some years and/or how much profit you make.
* You have the knowledge to carry out the operation as a successful business.
* You are not carrying on the ranching activity for personal pleasure or recreation.

You don't have to qualify on each of these factors - the cumulative picture drawn by your answers will provide the determination. Once you've established that you are raising alpacas with the intent to make a profit, you can deduct all qualifying expenses!