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Is America Being 'Fleeced' by Alpaca Write-Off?

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Juergen Ritterbach | Getty Images

The federal government wants to help businesses grow, especially small businesses.

One popular way to do that has been section 179 of the tax code, which allows businesses to write off the entire cost of buying new and used equipment, up to $650,000 worth, in the first year of purchase. That immediate depreciation can shave over $200,000 off a tax bill.

The hope is that the massive savings will be used to hire people, reinvest in the business, or in some other way that benefits the larger economy. It’s good for companies buying new machinery or computers.

Or for alpacas.

In one of the more obscure uses of the tax provision, people who buy alpacas for "business" purposes can immediately write off the entire purchase price of the animal. The average alpaca costs $5,000 to $10,000 each, though prize-winning animals can go for a few hundred grand. Alpaca breeders tout the tax break as a reason to buy.

What is the business here? Well, it is to breed more alpacas. Many, however, are now selling the animal’s prized fleece to small, cottage manufacturers, but owners are trying to scale up production to the point where it can sustain a commercial textile industry alongside wool.

"This is really about a horse," jokes Cindy Harris, who runs Alpacas at Windy Hill in Somis, Calif. Hers is the largest operation in the state, with 350 animals, half of them boarders. She originally wanted to buy horse property 11 years ago, but ended up with a big piece of land.

"I had to look for something that would help defray the property taxes, and somebody told me that alpacas could do that. So I thought, ‘Well, heck, that sounds more fun than avocado trees.’ " As for the tax break, she says, "Any start-up business needs a break. Alpacas have only been in this country about 25 years."

Stephen Ellis ofTaxpayers for Common Sensethinks giving alpaca breeders a break is not the best use of the tax code. "Is it really a successful business model? Are we setting people up to fail? Are we then going to end up with an alpaca bailout?"

The Alpaca Owners & Breeders Association finds itself having to fend off such criticism. "Do you want the next warmest, loveliest, lightweight, water resistant, fire retardant, lovely textile, natural, grown-close-to-home fiber in your closet?" asks Claudia Raessler, who raises alpacas in Maine and is on association’s board of directors. "If the answer to that is ‘yes’, do you want to stimulate U.S. production and the economy?"

Raessler estimates there are about a quarter-million alpacas in the U.S., and while fleece production remains relatively small, she believes that the group is on the cusp of reaching critical mass to become large enough to lure in commercial manufacturers.

Her group has hired the former head of Cotton, Inc. to create a branding campaign. Raessler says alpaca fleece is in high demand because of its quality, and the fact that females can only give birth once a year. "If you can put it into a commercial bale, you can sell every piece of alpaca fiber that you can possibly produce."

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But even after years of tax breaks, the industry still hasn’t reached commercial viability on a meaningful level. Some still see alpacas as fleecing the budget, not your winter coat.

"What are we actually accomplishing with all of these various loopholes and deductions and credits across the code?" asks Stephen Ellis, speaking beyond the breaks given to alpaca owners.

"Nobody has an answer, and yet we’re spending over a trillion dollars in tax expenditures every year allowing people to write off or get credits in the tax code."

Harris of Alpacas at Windy Hill wonders why her business is being singled out for criticism. "People think that this is kind of a phony baloney industry, but it’s not.

"I need you and you and you and you to go out and raise alpacas on your property, so we can have more, so we can have enough fleece," she says, pointing into space, standing in the middle of a large pen filled with the shy, skittish animals. "That’s the whole reason for the whole thing. It’s all driven by fleece."