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  1. #1
    Join Date
    Jan. 14, 2012
    Posts
    60

    Default Spinoff: Horse Flipping & Capital Gains Tax?

    In another thread someone mentioned an example such as this when buying and flipping a resale horse:

    "$1,000 and a month later it's $6,000?

    $50,000 and a week later it's $250,000?

    Or, is it always okay? (call it a lucky flip)"


    ...I am wondering, does the seller pay short term capital gains on the profit of the horse (especially if the profit is $200,000)? So a tax of over 15-35%?

    Is that why riders who buy and sell horses will turn themselves into an LLC so that the profit is considered part of their business? (But do LLC businesses pay capital gains taxes on that profit?)

    Help me understand horse buying/selling and taxes!



  2. #2
    Join Date
    Sep. 19, 2008
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    Half past the point of oblivion
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    895

    Default

    An individual who sells horses is definitely required to pay short term capital gains. I don't know about LLCs or how many pros are honestly reporting their earnings.
    Holy crap, how does Darwin keep missing you? ~Lauruffian



  3. #3
    Join Date
    Apr. 13, 2000
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    The OC
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    4,824

    Default

    Pretty sure and LLC is taxed the same as an individual. The profits flow through to your individual return. Corporations, however, may be different depending how they are set up.

    But, horses are assets and therefore depreciate, even if in our minds they appreciate with training and a show record. So in some instances you MIGHT be better off paying a short term capital gain than the long term gain on a larger gap between the sale price and the depreciated value of the horse.



  4. #4

    Default

    Generally speaking, capital gains rates apply if an asset is bought and sold for investment purposes outside the ordinary course of business. For example, if one purchased some shares of IBM as an investment and later sold them, the capital gains tax rates would apply. Conversely, if a horse trainer purchased and sold a horse, that profit would be taxed at "ordinary income" rates since buying, selling and training horses is part of a horse trainer's ordinary course of business.

    It is probably worth noting that short term capital gains are taxed at the same rates as ordinary income (no tax advantage). Long term capital gains (asset held for more than a year) are taxed at a lower rate than ordinary income.

    Limited Liabilty Corporations (LLC's) are pass through vehicles, meaning income is passed through to the owner(s) and the income is taxed at the respective owner's individual tax rate. Generally, folks adopt the LLC structure over a sole-proprietorship for the limited liability protection it affords.


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