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Originally Posted by Holland Hacker
CS
The Tax Reform Act of 1986 ("TRA") happened. Congress created the Passive Activity Loss rules which basically disallowed the deductibility of passive losses. Many "Rich" people were writing of their vacation homes, rental properties, horses etc. against their earned income and the government felt that the "Rich" weren't paying enough taxes. Before the TRA people were investing in horses, property and the like and writing off the losses so even though they were losing money they were only losing 2/3s of the money as they were saving a 1/3 of the losses in taxes. Additionally some of the losses were being generated by depreciation and were therefore not even cash losses so it may have even been cash neutral. Basically the Government perceived that the middle class was paying for the lavish lifestyles of the "Rich and Famous".
Having said that, I have a question for you, and you do not have to answer it if you do not want to.
For the last two years I have owned a small (2%) interest in a NYB filly. Last year she won 3 of 4 races at Belmont and earned roughly $90K.  When I got my K-1 from the partnership I was shocked that it reported a loss of around $500. Being the Accountant that I am I figured it must have cost the Partnership $115K (90K + (500/.02) in "upkeep" for the horse. To me this seems a little high!
My question is how much money should a horse have to earn in NY to break even? I would have thought that her eranings of 90K would have been enough to make a profit, even taking into account depreciation.
What are your thoughts? |
Holland I understand what you are saying but the point I was trying to make is that the IRS is right about this being a hobby for a lot of owners. Making it into a "business" and complaining about how hard it is to make money is the problem. If you cant afford or stomach the losses then you should not own horses. I want the sport to try to take steps to make it more economical for owners to get in and stay in the business but it will still be hard to do without selling horses either through the sales ring or privately off the track. The tax laws were changed over 20 years ago. We cant keep blaming that for all our problems.
I think that unless your horse was bedded on gold inlaid straw and fed surf and turf it would be hard to come up with $115k in yearly expenses. If you are making 90k in earnings a year you should be in the black unless the horse is insured for 2 million dollars or something like that.