Cuddle up to the tax benefits of alpacas

Photos by CHRISTOPHER TOMLINSON—The Daily Sentinel Mike McDermott, shown with some of his 50 alpacas in Palisade, says they are “extremely easy to raise,” and he praises the advantages of their fleece over wool. Legislation in 2008 reclassified alpacas as livestock and included tax advantages for raising them.



Alpacas are cute. They’re soft. They’re quiet and gentle — for the most part.

And raising them is also the easiest way to earn the federal tax advantages set aside for raisers of commercial livestock, something more and more western Colorado small-acreage farmers are recognizing.

“I wanted to use our acreage in a good way, and so I started looking into different kinds of livestock, and alpacas really appealed to me,” said Leah Reynolds, who with her husband are eight years into their alpaca-raising business in Loma, Horse Mountain Alpacas. “The tax incentives were part of the reason for us.”

The trend in this country of raising alpacas — herbivores domesticated in abundance in the South American Andes, related to camels and closest in species to the larger llamas — took off in 2008. That’s when a federal farm bill reclassified alpacas as “livestock,” rather than exotic animals.

That kicked open the barn door to the tax breaks.

Mike McDermott, who tends to a herd of 50 in Palisade at SunCrest Orchard Alpacas, calls them “extremely easy to raise.”

He says cows eat four times as much as alpacas; sheep twice as much. They get rid of their waste as a herd in one spot, away from grazing areas. They make very little noise, and they’re generally non-aggressive.

“With all other livestock, you’ve got to have a third eye in the back of your head,” McDermott said.

Many describe alpaca temperament as similar to a cat — curious, but self-aware, and comfortable being around people, but only on their terms.

“People tend to want to pet them and love up on them, and that’s really not what they like,” Reynolds said.

“They only let people into their space so far. With trust, they let you in a little closer,” according to McDermott.

To get the tax benefits, alpaca raisers need to prove that it’s more business than hobby over the first few years. By proving an attempt to make a profit, the herder can write off all of the expenses related to the animals’ care, among other breaks. Even depreciation costs of the animals themselves, barns and fencing come off the top.

Breeding is tax-deferred over time, and raisers won’t pay income tax on the herd as it grows until they decide to buy or sell animals, according to the Alpaca Owners and Breeders Association.

The market for alpaca fiber makes the economics work even more in breeders’ favor. McDermott said the animal’s fleece is eight times warmer than wool, half the weight, and is far superior in repelling water. Only two percent of the population is allergic to alpaca, versus 34 percent of wool-wearers. It’s also highly resistant to fire.

With all of these inherent advantages, it’s not a surprise that the number of alpacas in the U.S. is on a serious upswing. The most recent USDA Census of Agriculture, from 2007, showed 121,904 alpacas across the country. McDermott said the latest registry numbers report more than 230,000 now.


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