Paul Husband has recently republished his popular article "Equine Leasing Transactions", in which he explains why leasing has become an attractive option to outright ownership for many breeding operations. The article outlines the potential cost savings and income producing advantages for the lessee and lessor, and explains key terms to be included in both stallion and mare leasing contracts. Will the income from stud fees be split between both parties and at what percentage? Will both parties retain breeding rights to the stallion? Who will pay for the insurance and who is entitled to collect in the event of a claim? Who will pay overhead, board and veterinary costs? How will registration applications and required reports be handled? In the case of a mare lease, who will be entitled to the foal(s)? Will the mare be stalled or pasture boarded? What stallion will she be bred to?
Paul goes on to give several case scenarios focusing on options and valuable recommendations regarding specific agreements for each. Tax benefits in regard to savings and deferrals are also discussed.
In these times of rising costs, it's more important than ever to make sound business decisions for your breeding operation. Find out if a leasing might be a viable option to help your equine operation reach its goals of increased profitability and success.
One of the ongoing problems in the evaluation of so-called "hobby loss" horse business before the IRS is whether or not the appreciated value of ranch or farmland counts as an asset of the horse business.
The Treasury Regulations provide that appreciated assets of a horse business including ranch or farm land are to be taken into account in evaluating the profitability of the horse business for purposes of determining whether or not the horse business is motivated primarily for profit; that is, whether or not a horse business owner can deduct his or her losses against other income. However, Tax Court cases which have applied this rule have done so inconsistently over the years.
Paul Husband's latest article focuses on land as an asset in a "hobby loss" case, and outlines examples of how courts have interpreted the code.