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claimed substantial deductions for the cost of horse show
equipment, costumes, and material. However, there is no
persuasive evidence establishing how all of these expenses either
produced or would produce income. In short, petitioners' failure
to devote a considerable amount of time to the farm activity
combined with the fact that they derived substantial personal
pleasure from it suggests that the activity was not engaged in
for profit.
D. Expectation That Assets May Appreciate
An expectation that the appreciation of assets used in an
activity will produce an overall profit when netted against the
losses from that activity may indicate the requisite profit
objective. Sec. 1.183-2(b)(4), Income Tax Regs. There must be a
bona fide expectation that appreciation will produce a profit at
some time in the future. Allen v. Commissioner, 72 T.C. at 36;
Engdahl v. Commissioner, 72 T.C. at 668 n.4; sec. 1.183-2(b)(4),
Income Tax Regs.
On petitioners' Schedules F for 1991 and 1992, they showed
farm income of $475 and $1,050, respectively. Petitioner
testified that he became interested in horses after realizing
that such animals were a valuable asset having appreciation
potential if properly exhibited at horse shows or used for
breeding purposes. In 1992, petitioner owned three horses, one of
which was allegedly a stallion that he bought for breeding
purposes. At one point during the trial petitioner noted
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