NY

[Holland Hacker]

Originally Posted by Cannon Shell

How many rich people make money when they buy a yacht? How many make money when they pay $100,000 a year to be a member of a country club? Who makes money buying a vacation home (especially in this market)? Who said that you should make any money in the sport? The "business" of owning horses has a flawed model because there is no business of owning horses. Standing stallions or selling yearlings is a business, a very difficult one at that. I dont care if Jess Jackson makes any money at this. The problem is the whole attitude that anyone "should" make money. That is why the terms of many partnerships are very specific upfront. What ever happened to the enjoyment of owning horses for the sport of it?

CS

Please allow me the liberty of making some comments on your post and then asking you a question.

I think many people actually do make money investing in vacation homes, even in this market. Perhaps I am naive but I think most people who buy vacation homes are doing so for the long haul and not the short term or flip it to make a profit. Historically real estate has performed very well.

I also don't no anybody that pays $100K to join a Country Club and I only know of 1 or 2 clubs in my area (Central NJ) that even think about charging that much (Trump National & The Ridge at Back Brook). I also understand that the "initial out lay at the Ridge is in the form of a bond which is returnable and can increase in value based on future demand. My opinion is that if people have that kind of money to spend on a country club that more power to them. I think it means they were either born into it or have worked very hard to get it and should be able to enjoy it.

Like you I don't care if Jess Jackson earns any money in this business or is just spending his earnings from selling wine.

Originally Posted by CannonShell

What ever happened to the enjoyment of owning horses for the sport of it?

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?