Horse Breeding

[Snaggletooth]

Every now and then some rich client wants me to deduct breeding of race horses, and all the expense that comes with it. I tell them I will be happy to do so if they can report a profit. That usually ends the discussion. I have felt like this is an invitation to audit and disallowance. Unless you have a horse like Secretariat, you won't be making a profit.

However, a recent client wants to purchase, breed, and sell colts. Also rent them out after they are grown. I believe this has potential for profit within 3-4 years, so long as the expenses can be related to the animals themselves and not facilities, or contest fees.

Whadd'yall think?

[Twin Turbo Z]

We have several breeders as clients. Many different animals. Most of ours are set up on schedule F but a few C's. I see no issue. Remember the "presumption of income". Many farms starting out will go years with out a profit. Depreciation and section 179 plays into this "loss" also. We are in the middle of farm country and that makes up a good part of our practice. Years ago we had a talk with an IRS field agent concerning this same thing. He stated as long as the taxpayers were active in the farming and working towards an income producing farm. The loss/income ratio would not apply to them. Again he stated the "presumption of income". Now little Johnny's parents who buy him a rabbit or pig to show at the fair are not farmers. I would not hesitate to allow your client to do so.