Tax Court Rules that Horse Racing Losses Can Be Deducted

Here is one of those instances where meticulous record keeping paid off.

Income Tax—Horse Racing Activity Not Passive: The Section 469 Passive Activity Loss (PAL) rules
limit losses from any trade or business in which the taxpayer does not
materially participate. The Tax Court has recently held that a lawyer’s losses
from a side thoroughbred horse breeding and racing activity (thoroughbred
activity) were not PALs and consequently were currently deductible. The lawyer
presented a narrative summary (prepared using telephone records, credit card
invoices, and other contemporaneous materials) at trial demonstrating for the
three years at issue he had participated in the activity for more than 500
hours during each year. Stefan
A. Tolin
, TC Memo 2014-65 (Tax Ct.).

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