Problem:
After many years as a successful orthodontist, Martha has decided to buy a ranch in the country. Martha has always liked horses and anticipates acquiring several for the ranch. On the weekends, Martha can relax at the ranch and ride her horses. The cost of operating the ranch and owning horses will be substantial so she plans to treat it as a business and use the expenses to offset her income as an orthodontist. She anticipates that the ranch will appreciate in value over the next ten years.
What tax issues do you see with her plans? Discuss anything Martha can do to strengthen her situation. What are the consequences if the ranch is never profitable?