Two people decide to raise show horses beginning in 2019 in hopes to make a profit....

Two people decide to raise show horses beginning in 2019 in hopes to make a profit. In 2019, they had no income from the horses and had expenses of $20,000. What IRS codes/regulations could be used to support this case?

Expert Solution

Activities like racing and showing horses are presumed to run for profit if there are profits in 2 out of 7 tax years provided the activity remains the same. if this condition is satisfied expenses can be claimed as deductions even in the years of loss

But if it is a newly started venture the burden of proving that business exists for profits can be extended to 5 to 7 years by filing a form with IRS. In this case IRS will not immediately raise questions of profit motive in the start up business and will permit to claim expenses as deductions ,IRS in this case provides extra time to earn profit

Filing form 5213 can help in extending the time limit and if 3 or 2 years profit is shown in any of the 5 or 7 years then all deductions can be claimed

ekkarill92 answered 2 years ago

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