The horse industry is not standard in its marketing of animals. Horses are not generally sold in quantities like other animals. Individual sales are the norm and factors related to subjective characteristics of the horse greatly affect pricing.

Expenses related to horse breeder operations will include purchases of animals, veterinary fees to keep the animals in the best health condition, facilities for boarding, feeding, and training, fees for breeding services (either stud or artificial insemination), insurance coverage of the animals to compensate for losses due to injury or accident, advertising and promotion, and specialized feed materials.

Events, shows and races, involving the animals will require entry fees which are deducted as current expenses. A certain type of race, known as a "futurity", involves periodic payments of entry fees toward a future event. These payments should be deducted currently even though the animal may be unable to participate for any number of reasons.

Race horses have been subject to "syndication," the partitioning of ownership among, typically, up to 40 shareholders. The syndicated shares often contain breeding rights for the owners in addition to rights to profits. NOTE: See Internal Revenue Code (IRC) section 464 for the technical definition and application of rules for farming "syndicates."

IRC Section 1231

Transfer of an interest percentage in an animal in exchange for training or other services is considered a sale or exchange which results in the recognition of gain or loss for the fair market value of the interest transferred compared to the basis of the animal. See F.C. McDougal et al. (1974) 62 TC 720 for the related court decision.
Treas. Reg. section 1.1231-2(c)(1) provides that, whether a horse is held for racing purposes shall be determined in accordance with the following rules:

A horse which has actually been raced at a public race track shall, except in rare and unusual circumstances, be considered as held for racing purposes.

A horse which has not been raced at a public track shall be considered as held for racing purposes if it has been trained to race and other facts and circumstances in the particular case also indicate that the horse was held for this purpose.

A horse which has neither been raced at a public track nor trained for racing shall not, except in rare and unusual circumstances, be considered as held for racing purposes.

IRC Section 61
Animals not fitting the requirements of the operation will be culled and sold. These sales may be through auctions or sale barns, but may be directly to buyers. Documentation may be less detailed on these sales than sales of high quality animals. Syndication sales will normally involve significant amounts to be recognized. Stud services will be a recurring source of income in many instances.
 

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IRC Section 168

Certain horses are 3-year property, including, IRC section 168(e)(3)(A) any race horse which is more than 2 years old at the time it is placed in service, any horse other than a race horse which is more than 12 years old at the time it is place in service. Any other horse which qualifies for depreciation will be 7-year property. Within the horse industry, a horse is considered to have been born on January 1 of the year of birth for designation as a 1-year old, 2-year old, etc.