At the Keeneland September Sale, 56 yearlings fetched at least $1 million, led by a Gun Runner colt who sold for $3.3 million.Courtesy of KeenelandA version of this article first appeared in CNBC's Inside Wealth with Robert Frank, a weekly guide to the high-net-worth investor and consumer.
to receive future editions, straight to your inbox.Wealthy connoisseurs are less in their passions, from art to fine wine.
Racehorses, however, are bucking the trend.The Keeneland September Yearling Sale in Kentucky, the largest thoroughbred auction in the world, grossed a record $531.7 million this year, handily beating last year's $427.9 million.
At the two-week auction, which Sept.
20, 56 yearlings sold for at least $1 million, a record 40 in 2005, and 120 buyers spent at least $1 million, up from 96 in 2024.The top lot, a dark bay colt sired by Hall of Famer Gun Runner, was bought for $3.3 million by a group of investors including paper mogul Peter Brant.Racehorse breeders told Inside Wealth that they credit tax breaks from President Donald Trump's "big beautiful bill" for the strong results.The biggest boon is the renewal of "bonus depreciation," a tax break that's more commonly associated with private jets but that also applies to racehorses.
As of this past January, es can write off 100% of a racehorse purchase in the first year of ownership.
Bonus depreciation also applies to related expenses special purpose barns and equipment."I think the tax code changes are just a great incentive for a highly speculative where it's not unfamiliar to have losses," said John Sikura, owner-operator of breeding farm Hill 'n' Dale at Xalapa, which consigned the Gun Runner colt.
"It's nice to know that you have, essentially, a partner if things don't work out."Tony Lacy, vice president of sales at Keeneland, said other factors were also at play, including greater interest from younger buyers and a weaker U.S.
dollar drawing more international investors.Sikura said those trends were too gradual to cause a 24% sales bump in one year.The recent bill reinstates the 100% bonus depreciation benefit from the Tax Cuts and Jobs Act that passed in late 2017.
The September sale saw a boost of 23% in 2018, the next auction after that legislation passed.
The gain, however, was short d, and the write-off percentage started decreasing by 20% annual increments in 2023.Accountant Len Green described this year's September sale as "breathtaking," and said half of his 800 racing clients were in attendance.
He also owns some 200 horses and said it was a highly competitive auction, with his DJ Stable bidding on 60 lots and only landing 18.While bonus depreciation is the most valuable perk for horse owners, there are many more advantages in the tax-and-spending bill, according to Green.
For instance, horse buyers no longer have to wait until the horse is actively training or racing to take the deduction.Horse breeders and owners can also deduct their losses against any type of income, including capital gains and salary, according to Green."It's a tremendous advantage," he said.That said, owner-operators can trigger the scrutiny of the IRS if they mix with pleasure, Green said.
The IRS is more ly to designate a stable as a hobby instead of a if there are certain red flags not having a plan or separate bank accounts.The strong September sale will give a leg up to three upcoming Keeneland auctions between now and the end of November, according to Lacy."It certainly puts money back into the breeders' pockets," he said.
"Breeders will reinvest in breeding stock on the back of a successful yearling sale, because they love confidence for the future."Get Inside Wealth directly to your inboxThe Inside Wealth by Robert Frank is your weekly guide to high-net-worth investors and the industries that serve them.
here to get access today. While the bump in 2018 was temporary, Sikura said he thinks the recent tax code changes may have a longer lasting effect.
With the recent bill, the 100% bonus depreciation is permanent, barring an act from Congress, while the previous bill was designed to phase out the benefit by 2026."Every market wants security," he said.
"Knowing that this change in the tax code is permanent — it can be changed but it's not going to sunset — I think that's very reassuring."The investor landscape is also more crowded, Green said."There's a lot of younger people.
There's a lot more partnerships now than there were before. There's a lot of people who have made money," he said.
"They can't buy baseball teams and they can't buy football teams, but they can buy pieces of horses and get their picture in the paper."However, down the road, a lot of buyers may question the premiums they paid, he added."There were 56 horses that sold for more than a million dollars," he said of the September sale.
"There's not going to be 56 stake winners in that group so a lot of people are going to lose an awful lot of money."