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 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 if you are an active hands-on owner, the
benefit of off-setting your ordinary income from other sources
with expenses from your ranching business.
Those considering entering the alpaca industry
should engage an accountant for advice in setting up your
books and determining the proper use of the concepts discussed
here. A very helpful IRS publication, #225, entitled The Farmer's
Tax Guide, can be obtained from your local IRS office. The
goal of this discussion of IRS rules is to provide the 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.
Raising alpacas at your own ranch, in the
hands-on fashion, can offer the rancher some very attractive
tax advantages. If alpacas are actively raised for profit,
all the expenses attributable to the endeavor can be written
off against your income. Expenses would include feed, fertilizer,
veterinarian care, etc., but also the depreciation of such
tangible property as breeding stock, barns, and fences. These
expenses can also help shelter current cash flow from tax.
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.
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 a direct write-off (expense) method known as
Section 179 that allows a substantial deduction each tax year
for newly acquired items that are normally long-term depreciable
assets. While this is subject to several limitations, it is
widely utilized by small ranches to accelerate expense, if
that is appropriate for your tax situation. Owners currently
in high tax brackets who are changing their  lifestyle
in the next several years to a lower income level often use
it.
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.
Read more ABOUT
ALPACAS.
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