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Income Tax Regs. The fact that the taxpayer devotes much of his
personal time and effort to carrying on an activity, particularly
if the activity does not have substantial personal or
recreational aspects, may indicate an intention to derive a
profit. Id.
Mrs. Dodge testified regarding the typical amount of work
performed by petitioners and their daughter in caring for the
horses. The record indicates that Mr. Dodge spent approximately
15 hours per week, and Mrs. Dodge spent approximately 20 hours
per week working on the horse farm. Accordingly, petitioners
spent significant amounts of time and effort carrying on the
horse-breeding activity. However, Mr. Dodge and Andrea Dodge,
who are skilled riders, also derived substantial recreational
benefit from the time they spent with their horses; therefore,
this factor is generally neutralized.
4. Expectation That the Assets Will Appreciate in Value
Another factor is the taxpayers' expectation that the assets
used in their breeding activity would increase in value. Sec.
1.183-2(b)(4), Income Tax Regs. Canadian Fury was the reserve
national champion in 1984. The value of Canadian Fury and the
value of the three foals that she subsequently produced increased
as a result of this. In addition, the value of the farm and land
increased from $72,500 in 1983 to $121,000 in 1992. Petitioners
maintained the belief that the farm would eventually become
profitable due to appreciation in the value of the land and
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