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Is Horse Breeding and Racing a Hobby or Business?

2019 – 06/27 The U.S. Tax Court has ruled a horse breeding and racing activity is a hobby, not a business. A married couple formed a partnership to breed and race world-class thoroughbred horses. In nearly 30 years of operation, the partnership never yielded a profit. The couple deducted large losses from the activity on their federal tax returns. The IRS disallowed the losses, arguing that the couple didn’t engage in the activity for profit as required by tax law. The court agreed. It found that the taxpayers didn’t conduct the activity in a businesslike manner, seek the advice of experts, or devote the necessary time and effort to prove they had a profit-making purpose. (TC Memo 2019-71)

©2019 Bland Garvey CPA