Horse breeding losses aren’t always hit by the hobby loss disallowance rules as a recent tax court case shows.
First how to do it right. A couple bought, bred and trained horses in addition to working regular jobs. They had a detailed business plan and adjusted it after consulting with experts. They used recognized horse farm accounting software, opened a separate bank account and set up a website for their breeding operations. After several years of red ink, they prudently realized they couldn’t make a go of it and shut down the business. This convinced the Court that they had a profit motive and their breeding operation was more than a hobby (Blackwell, TC Memo. 2011-188).
But another breeder wasn’t so lucky. Instead of getting his hands dirty, he let others do the work for him by investing in a tax shelter deal that was intended to create large up-front losses before the mares were sold at a profit. The Tax Court gave short shrift to his claimed breeding losses (Van Wickler, TC Memo. 2011-196).
First how to do it right. A couple bought, bred and trained horses in addition to working regular jobs. They had a detailed business plan and adjusted it after consulting with experts. They used recognized horse farm accounting software, opened a separate bank account and set up a website for their breeding operations. After several years of red ink, they prudently realized they couldn’t make a go of it and shut down the business. This convinced the Court that they had a profit motive and their breeding operation was more than a hobby (Blackwell, TC Memo. 2011-188).
But another breeder wasn’t so lucky. Instead of getting his hands dirty, he let others do the work for him by investing in a tax shelter deal that was intended to create large up-front losses before the mares were sold at a profit. The Tax Court gave short shrift to his claimed breeding losses (Van Wickler, TC Memo. 2011-196).
