Bluegrass Horse Estates

What do the richest farmers produce in the Bluegrass Basin?

Answer: thoroughbred horses for racing at such places as the Kentucky Derby in Lexington. Forbes magazine says that the most costly horse farm on the market today is Highland Farm, an "equestrian property" outside of Lexington, KY. Its $60 million price tag includes 115 breed mares, 30 barns, 19 houses, and 2,000 bluegrass acres. The main house has 9 bedrooms and 12 baths [Source: Too Much, Fall 2001, p. 5.].

As we discussed in class, these farms and this distinctive cultural landscape was created largely using IRS tax codes, i.e., a tax-dodge landscape. Here is what a former student in geography 111 learned about tax shelters recently while in law school:
"I remembering your discussion of Kentucky horse farms and how they serve as tax shelters for the wealthy. In 1986, Congress severely restricted the use such enterprises as methods to reduce income. Currently, these are treated as passive investments which cannot be used as deductions against income such as salary or stock market investments. There is an exception but it requires a significant amount of time investment on the part of the owner. Tax shelters can offset income on other passive investments however, so the tax breaks were not entirely removed. However, it is more difficult to utilize one than it was 20 years ago. Nonetheless, our professor, who is a practicing attorney, told us of a client who owned a horse farm in Florida and was able to demonstrate that significant time investment (500 hours of non-menial work) to offset his farm, which lost thousands, if not millions, against his stock portfolio and income! Though the use of horse farms as tax shelters is harder, it looks like they're still in the tax loss business.
Sincerely, Brian Cothroll (UWEC '99)"

Created by Ingolf Vogeler on 30 April 1996; last revised on 07 Dec 2010.