Owning a race horse can be one of the most exciting investments you will ever make.
Nothing can describe the feeling of watching your horse victoriously pass his opponents and cross the wire first. There is no comparison to standing in the winner’s circle with a beautiful animal that you have watched in training. A glorious horse which has become your friend; the same horse that was happy to see you with carrots in hand at the barn. The victorious feeling makes you feel like you can conquer the world!
Owning part of a winning thoroughbred is no different than that of sole ownership. There is however little doubt that the lower costs of owning a horse in partnership allows many owners an economical option to being part of this exciting business. It is an excellent avenue especially for many first time owners.
Additionally, partnerships offer a great way to reduce the risk by owning smaller shares in multiples horses, similar to a mutual fund.
It is essential to choose the right partnership. The size of the partnership and geographic location should be considered. Before entering into a partnership, review the track record of those involved, particularly the trainer. Not only do you hope to be profitable in your investment, it is important to work with individuals who enjoy the sport. There can be a great deal of social interaction with the right partners. It is important to enjoy your time with your partners. Whether you see them at the barn or in the winners’ circle, having partners who truly enjoy the sport can make for a better experience.
Race horse ownership can be a risky business. As in any sport, there is a high level of competition and of course, everyone wants to be the winner. Picking the best team available to you is an important factor.
Race horse ownership is a business that provides employment opportunities to a number of individuals, including but not limited to trainers, grooms, farriers, veterinarians, jockeys, stewards, and several other race track personnel. As a result, owners are appreciated by the race tracks and are offered several privileges.
Race horse ownership is first and foremost an investment. If treated like the business that it is, the IRS affords many of the same protections as investing in any other business venture. Your investment in a race horse must be with a “for profit” motive. It is important to keep adequate records to prove that you intend to make a profit at the start of your horse venture.
Additionally, active participation in the business venture is necessary to satisfy the IRS. If you are an active investor, any losses from a horse business are fully deductible against any income. These include your initial investment and any ordinary and customary business expenses related to such investment.
Among active participation is time spent on meetings, telephone conversations and other discussions of the horse business with partners, other owners, trainers and caretakers, as well as attendance at races or other public events to judge the capabilities of your horses and/or the competition. Additionally, reading and considering trade publications and attendance at registration, licensing and other regulatory requirements are part of active participation.
An active investor is involved on a regular and continuous basis and invests with the intention of making a profit. Proper records can back up your profit motive and evidence your active participation.
There is no intent to provide any tax advice. It is strongly recommended that you discuss this activity and the tax implications with your tax advisor or tax accountant.
To this end, I recommend my own tax accountant, Alan Epstein, CPA. Mr. Epstein is not only an experienced tax accountant, he is also a horse owner and breeder who has worked with many owners and trainers with complex tax issues. Mr. Epstein’s accounting business, Tax Time Arizona is conveniently located near Turf Paradise Race Track in Phoenix, Arizona. Mr. Epstein is always willing to assist horsemen with accounting and tax concerns
A good source of general information about thoroughbred ownership is available from the Thoroughbred Owners and Breeders Association – http://www.toba.org.
If you think you might be interested in a thoroughbred horse partnership, I would be happy to hear from you. I will follow-up on any comments or suggestions.