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Respondent contends that petitioner’s time log for 1996
shows that she did not spend much time on the horse activity. We
disagree. The time log for 1996 corroborates petitioners’ and
Amy Stenger’s testimony about the time and effort they spent on
the horse activity. This factor favors petitioners.
4. Expectation That Property Used in the Activity Would
Appreciate in Value
A taxpayer may intend to make an overall profit when he or
she expects appreciation in the value of assets used in the
activity to exceed losses. See sec. 1.183-2(b)(4), Income Tax
Regs. There is an overall profit if net earnings and
appreciation exceed losses from earlier years. See Bessenyey v.
Commissioner, 45 T.C. 261, 274 (1965), affd. 379 F.2d 252 (2d
Cir. 1967).
Respondent contends that petitioners have not shown that the
appreciation in assets by 1996 exceed their losses. Respondent’s
contention improperly focuses on actual rather than expected
appreciation. See sec. 1.183-2(b)(4), Income Tax Regs.
Petitioners contend that they expected appreciation in the value
of their horses to more than offset their net losses. The
evidence upon which petitioners rely is inconclusive. This
factor is neutral.
5. Taxpayer's Success in Other Activities
The fact that a taxpayer has previously and profitably
engaged in similar activities may show that the taxpayer has a
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