The gain drain

"Was that horse sale part of your business?" Jay Hickey suggests you ask yourself. "If a horse is bought exclusively for resale as part of a business, then it's part of the horse operation's income. But if buying that horse is not part of your business--say the sale of your horse as just an isolated individual case--then you need to pay capital gains taxes," the president of the American Horse Council says.

Capital gain is the money made on the sale, less the amount you paid for the beast. For instance, if you bought Dobbin for $2,000 a few years ago, but sold him for $5,000,

thanks to your outstanding training skills, technically you owe taxes on the $3,000 profit you realized on the deal. "There is nothing you can buy or resell that you don't pay taxes on," Hickey says. "One point, however, is you don't pay capital gains if you owned the horse for less than six months."

Capital gains tax rates can change, and there's restructuring afoot for the entire tax code. But for now, the federal rates for 2001 taxes are 10 percent or 20 percent, depending on your tax bracket.

Talk to your accountant regarding local and state taxes.

In some states, you don't pay taxes on horse sales at all; others make you pony up only if you sell more than three horses within the tax year.