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My inclination is that the price I get for a foal every other year shouldn't be reported as income since the horses are a hobby, I will not make a profit at this, and I am not deducting all the horse costs (feed, vet, etc.)

I suggest referring to IRS Pub 225, Farmer's Tax Guide:
http://www.irs.gov/pub/irs-pdf/p225.pdf

Note:
- "Not for Profit Farming", on pages 27 to 28
- Table 7-1, Farm Property Recovery Periods, on page 46
- "Livestock", on page 58
- Table 9-1, Where To First Report Certain Items on Form 4797, page 62
- "Section 1231 Gains and Losses", page 62 to 63

I don't think Pub 225 tells the whole story. Based on anecdotal information, I believe that equestrian livestock businesses are special cases. According to my information, you can lose money on these businesses forever. Regretfully I don't have an authoritative reference for this information. If you live in a farming community, I would suggest seeking the advice of a CPA offering services to the farmers in the area.

David Jacobs
TMFDj

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