In part 1 I’m
going for the low-hanging fruit, stuff that is rather obvious and hopefully
almost everyone can agree on the basic “fairness” of my proposition.
Unless you are an owner or breeder, you may not know that horses held for breeding, racing, showing or draft purposes qualify for the capital gains rates only if they are held for 24 months. All other business assets (except cattle) qualify if held for 12 months.
Is it fair to deny the owners of horses the use of the capital gains laws under the same conditions as everyone else? The feeble reasoning usually given is that horse owners use these laws as a tax shelter. Imagine that, a law designed to shelter gains from taxes in order to promote business was used by horse owners to shelter gains from taxes and promote the horse business!
So what has been the effect of this special treatment for horse owners and breeders? The largest sales of horses for racing are usually the yearling sales. As these sales occur prior to holding the horses for 24 months the proceeds are considered income for tax purposes and are taxed at the full tax rate. There is no incentive to breed horses. The breeder’s capital is better put to use investing in stocks or real estate. As a result foal crops over the years have declined, race cards do not fill and race tracks close. The overall product of racing is diminished. The US government’s tax policy which is a disincentive to horse breeding is working. We just experienced one of the largest changes to the tax laws in a long time. The changes were said to be done to promote business which will help to make America Great again. For some reason the horse business still has special treatment and not special in a good way. Worst thing about being left out in the cold is that the majority leader in the Senate is from Kentucky!
Perry Martin has been a contributor to McCarran's since 2014. Mr. Martin is President of Materials Technology Laboratories, a thoroughbred breeder and owner of California Chrome.