The big beautiful combination: How your IRA might make you a happy racehorse owner. Even if you don't like horse racing.
Under the latest tax rules (specifically the One Big Beautiful Bill Act or OBBBA), the tax benefits of racehorse ownership are at an all-time high.
If you are at least 60 years old (59 1/2, but let’s round up, OK?), you might be like many of us wondering: how can I get the most out of that money? Especially if I don’t need all of it just to keep up with my costs of living as I get older.
When I spoke to a CPA with a racing industry background about an idea I had, I was pleasantly surprised. Bottom-line: I’m turning my hobby into a business, a business I’ve been figuring out how to enter since I retired from managing other people’s money in 2020, after 30+ years in that hot seat.
According to a 2025 survey by Fidelity Investments, baby boomers on average have about $500,000 between their IRA and 401(k) accounts. So being a half a millionaire in your 60s and 70s is “average.” The career I retired from in 2020 was spent as a fund manager and advisor to high net worth families. And while our clients had a net worth in the $2-7mm range, I never would have thought back then that $500k would eventually be average.
So today, no longer in the business of delivering personalized investment advice (or any investment advice for that matter), I wonder…how will all of that wealth be used? If it is in retirement accounts, it can come out at age 60, but it has to come out starting at age 73.
You see, I used to be the one responsible for “other people’s money. But now, I’m the client, so to speak. I’m in my early 60s and for the first time, thinking about IRA withdrawal strategies. And while I write about investing over at my other Subsatck site, ETFYourself.com, as well as Seeking Alpha and Barchart, the target investment is ETFs, stocks, and bonds.
Here’s the thing about IRAs. They are taxed as ordinary income. So if someone’s effective tax rate is 20% and they withdraw $25,000 from a retirement account, what normally happens? $20,000 of that can be spent, but $5,000 is going to be the government’s cut. For people in high-tax states, it might be a 40% cut or more. So that $25,000 withdrawal is really only $15,000 of spending money.
So, why not spend it on owning racehorses?
I was going to make the move from investing hundreds in racehorse ownership to thousands anyway. But when I spoke to CPA Victor Collazo, whose parents were trainers and whose clients include many horse owners, I confirmed my suspicion about how retirement accounts and non-retired racehorses can be a powerful and enjoyable combination.
According to Victor, Since you are operating as a business, you have a powerful tool at your disposal: the ability to use the horse purchase to “wash out” the tax liability from your IRA withdrawal.
Under the 2025 tax rules (specifically the One Big Beautiful Bill Act or OBBBA), the tax benefits for horse racing businesses are currently at a historic high.
1. The “Wash” Strategy (IRA vs. Deduction)
The $25,000 withdrawal from your IRA counts as $25,000 of ordinary income. However, because you are buying racehorses (such as claimers) for a business, you can use 100% Bonus Depreciation. In 2025, you can deduct the full purchase price of a racehorse in the first year it is “placed in service” (the moment you claim it and it’s ready to race).
The Result: The $20,000 deduction on your Schedule C effectively cancels out the $20,000 income from your IRA on your Form 1040. You essentially move money from a retirement account into a business asset tax-free.
2. Key Business Requirements
To ensure the IRS respects this as a business and not a hobby, you should meet these specific “safe harbors” for the horse industry:
The 2-out-of-7 Rule: While most businesses must show a profit in 3 out of 5 years, horse racing has a more lenient standard. The IRS presumes you have a profit motive if you show a net profit in at least 2 out of 7 consecutive years.
The “Placed in Service” Rule: You must actually buy the horse and have it ready to race before December 31st of the tax year to take the deduction for that year.
Operational Standards: You must maintain a separate business bank account and keep a “books and records” log (trainer invoices, nomination fees, purse receipts). Using a professional trainer is considered evidence of a businesslike intent.
3. Claiming Costs (The Hidden Expenses)
Beyond the $20,000 purchase price, your business can deduct:
Training Fees & Board: Usually $60–$120/day depending on the circuit.
Vet & Blacksmith: All medical and shoeing costs.
Vanning: Transporting the horse between tracks.
Jockey/Driver Fees: The “mount fee” (usually $100+) plus any percentage of the purse.
4. Important 2025 Update: Permanent 100% Bonus
Under the latest 2025 legislation, the “phase-down” of bonus depreciation (which was supposed to drop to 40% this year) was repealed. 100% expensing is now permanent for qualified property like racehorses. This means you don’t have to spread the $20,000 deduction over several years; you can take it all now.
Pro Tip: When you claim a horse, the track “Paymaster” will give you a 1099 at the end of the year for your gross purse earnings. Do not just report your net profit. You must report the gross purse as income and then deduct the trainer’s 10% and jockey’s 10% as business expenses to avoid an automated IRS flag.
Of course this is NOT tax advice. I got used to saying that back in my advisory days. Before even considering using IRA or 401(k) withdrawals to own and race horses, you not only need a good tax advisor.
You also need to be absolutely sure you won’t need that money any time soon. Remember that this is a business involving assets which are equines, not public company stocks or government bonds. As they say, usually referencing dogs, don’t let the tax tail wag the investment horse
Retirement accounts are flush. But using withdrawals to own racehorses is not gambling, if your intentions are straight. If you have any questions, comments or feedback on this, send us a message. I suspect this will be one of the more popular topics here, once more people start to think about the potential.