Tax Considerations "Check List"
Activities Related to Racing

I.  Is your racehorse a business or a hobby?
              
A.  Some factors to consider for a business

1. [Strike]:  There’s a presumption that equine activities, like other activities, are a business.  
   
2. There is a “two out of seven year” presumption - Activities relating to the breeding, training and showing of horses that show a profit during two years of a seven-year period are presumed to be a business.

              
B.  Other factors to consider:  

1. Manner in which Taxpayer carries on activity.  Does the owner maintain books and records?  Have there been any major changes in the operation? 
   
2. Is there an expectation that assets, including land, will increase in value?  If so, this suggests a profit motive.  
   
3. Is the racehorse owner an expert in racing, or the care of equines? Does he or she regularly hire equine breeding or racing experts to advise the activity?  
   
4. How much time does the racehorse owner spend engaging in racing and breeding? 
   
5. Does the horse owner conduct similar activities while turning a profit?  
   
6. Does the horse owner consistently make a profit in racing?  Initial start-up losses are expected, especially in racing, but if they’re ongoing, then it may not be a business.   
   
7. Does the horse owner derive substantial income from other sources?

II.   If a business, then consider available deductions:

A.   100 percent bonus depreciation 
B.  Three-year depreciation tax provision for racehorses available through 2020 
C.  Seven-year depreciation – still an option?
D.  Deduction of “ordinary and necessary” expenses

If a business, then consider the tax structure, such as pass-through, etc.  [This could be beyond the scope of a simple “check list.”

​If a hobby, are there tax benefits? Moreso pre-TCJA