25% owner of a race horse - best way to file taxes for partial horse ownership?

You've got yourself in an interesting situation! Horse racing activities can be treated as either a hobby or a business for tax purposes, and that distinction makes a huge difference. If you're treating this as a business, you need to demonstrate that you're engaged in the activity with the intent to make a profit. The IRS generally presumes an activity is a business if it makes a profit in at least 3 of 5 consecutive years (2 of 7 years for horse racing specifically because they recognize it's a longer-term investment). Since the main owner has an LLC but isn't issuing K-1s, it sounds like he's not treating this as a formal partnership. You have a few options: 1. You could report your share of income and expenses on Schedule C as a sole proprietor if you're actively involved in management decisions. 2. For the deceased horse, those losses might be deductible if you can establish this as a business activity on Schedule C. If it's considered a hobby, loss deductions are much more limited. 3. Creating your own LLC might help with liability but doesn't change how you're taxed unless you elect different tax treatment. 4. Travel expenses could be deductible business expenses if the primary purpose is business-related (checking on your investment, meeting with trainers, etc.

I was in a similar situation with race horses and training and found this amazing tool that helped me sort through all the tax implications. Check out https://taxr.ai - it literally saved me thousands because it analyzed my exact situation and showed me how to properly document everything. For race horse ownership specifically, it helped me understand whether I qualified as an active participant vs passive investor which makes a HUGE difference in what expenses you can claim!

I tried taxr.ai after seeing this recommendation and wanted to follow up. It was actually super helpful for my partial horse ownership situation! The document analysis identified that my arrangement was legally a partnership even without formal documentation. It helped me create a paper trail showing my business intent, which is crucial for claiming those losses. The most valuable part was getting specific guidance on how to file without a K-1 when you're entitled to one. Definitely worth checking out if you're in this situation.

If you're having trouble getting the majority owner to issue proper K-1s, you might need to speak directly with the IRS about your options. I was in a similar situation (not with horses but another investment) and spent WEEKS trying to reach someone at the IRS who could help. Finally found Claimyr (https://claimyr.com) which got me through to an actual IRS agent in under 45 minutes! You can see how it works here: https://youtu.be/_kiP6q8DX5c - they basically call the IRS for you and when they reach an agent, they connect you. The agent I spoke with confirmed I could file my own Schedule C with proper documentation even without receiving a K-1.

I was completely skeptical about Claimyr but decided to try it anyway since I'd been struggling to reach the IRS about a similar partnership reporting issue. I'm honestly shocked to report that it worked exactly as advertised. I got a call back when they reached an agent, and the IRS representative confirmed that I could file Form 8082 (Notice of Inconsistent Treatment) if my horse racing partner refused to provide a K-1 or file a partnership return. This lets me report my income and expenses properly while notifying the IRS of the discrepancy. Saved me hours of hold time and potentially thousands in disallowed deductions.

As someone who's owned race horses for years, here's my experience: the horse racing industry often operates pretty informally with these ownership arrangements which causes tax headaches. You definitely SHOULD be getting a K-1, but many operations avoid this. Your best protection is to 1) document everything meticulously 2) treat it as a business with proper recordkeeping 3) consider a "Schedule C: Racing Activities" approach if the main owner refuses to provide K-1s. Also consider writing up a simple operating agreement even after the fact to document your intentions for tax purposes.

Has anyone addressed the state tax implications here? Since OP lives in a different state than where the horse races, there might be nonresident state filing requirements too. I had horses racing in 5 different states one year and had to file returns in each state where purse money was earned. Something else to consider!

This is a complex situation that highlights why proper documentation is so critical in horse racing partnerships. From what you've described, you're likely in a de facto partnership regardless of whether the main owner acknowledges it formally. A few key considerations: 1. **The deceased horse loss**: Document everything - purchase agreements, vet bills, training expenses, insurance claims if any. This should be deductible as an ordinary business loss if you can demonstrate business intent (which the fact that you immediately purchased another horse helps establish). 2. **Partnership vs. Schedule C**: While technically this sounds like a partnership, if the majority owner refuses to file partnership returns, you may need to report your share on Schedule C. Keep meticulous records of all expenses, income, and communications showing your active involvement in business decisions. 3. **Travel expenses**: These are generally deductible if the primary purpose is business-related (checking on your investment, meeting with trainers, evaluating performance). Keep detailed records of the business purpose for each trip. 4. **Documentation strategy**: Even without formal partnership papers, create a written agreement outlining ownership percentages, profit/loss sharing, and decision-making authority. This helps establish legitimate business intent. Consider consulting with a tax professional who has experience with horse racing activities - this isn't a DIY situation given the complexity and potential audit risk.

One thing that hasn't been mentioned yet is the importance of establishing your material participation in the horse racing activity. Even if you're a 25% minority owner, if you can demonstrate that you materially participate in the business (more than 500 hours per year, or if this is your primary business activity), it can help classify your involvement as active rather than passive. This distinction is crucial because active participants can deduct losses against other income, while passive activity losses are generally limited to passive income. Given that you live in a different state, documenting your involvement becomes even more important - keep records of phone calls with trainers, time spent researching bloodlines, reviewing race schedules, analyzing performance data, etc. Also, regarding the LLC question - while it won't change your tax treatment unless you elect different status, it could provide liability protection if the horse injures someone or causes property damage. Horse racing does carry inherent risks that personal liability insurance might not fully cover. For the immediate tax situation, I'd recommend filing Form 8275 (Disclosure Statement) along with your return to explain your position on reporting the income/expenses without a K-1. This shows good faith compliance and can help avoid penalties if the IRS later determines different treatment was required.