Every first Saturday in May, the world stops to watch the Kentucky Derby. It is the peak of “Elite” racing: five million dollar purses and horses worth more than the hangars that house them. But if you are a trader looking for a lower correlation asset to go with your stocks and cryptocurrencies, you don’t want to waste time dreaming about winning the Derby and the huge capital investment required to get there.
You want the claiming game.
While Triple Crown races are great for sports fans, they are financially out of reach for most investors. Instead, many see the “industrial” circuit at dozens of American racetracks as a high-speed business. For the DIY investor, it’s not about running for the roses; This is Early Payback, the fastest way to convert a tax profit into monthly cash flow potential.
Is there risk involved? Certainly, given that this is investing and the assets are less liquid than stocks and ETFs. But they are much more liquid than many popular alternative investments. And if you follow the stock market during earnings season (like now), you realize that the value of a stock can drop 10% to 20% or more overnight before you can do anything about it. So that’s an important perspective.
You don’t need a billionaire’s budget to play at the Kentucky Derby headquarters or anywhere else in the sport of horse racing. In 2026, the true alternative to traditional investments is a Claiming Partnership.
For a $10,000 investment in a claiming partnership, you can get a 5% share in a stable of five “working” horses. Instead of going all-in on one star, you own five different assets that typically hit the runway every 4 to 6 weeks. This is a tangible asset where owners are encouraged to visit their horses in the stable. It’s a level of access to the blue-chip stock that a standard brokerage statement simply cannot provide.
Most alternative assets make you wait years to see your initial money again. Claiming horses function differently. Thanks to the One Big Beautiful Act (OBBBA) of 2025, racehorses have become one of the most tax-efficient tools of the code.
The OBBBA made the 100% bonus depreciation permanent.
Owners can deduct 100% of the cost of a horse during the first year of commissioning. Additionally, if your 100% depreciation creates a paper loss that exceeds your current year’s income, you can now carry forward that excess indefinitely as a net operating loss (NOL) to offset up to 80% of your future winner’s circle checks.
If you meet the “material participation” requirements (generally staying active through regular and substantial participation in the stable business), those deductions can potentially offset your active income, such as salary or business profits. However, even if it is not active, it counts as passive losses which can offset other passive income (such as rental income) or be released when the partnership interest is disposed of.
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Feature
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Active Ownership (Material Participation)
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Passive ownership (portfolio investor)
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Primary benefit
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Compensations all forms of income (W2, 1099, Earnings)
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Compensations Passive income (Rentals, Private Equity)
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Depreciation
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100% day 1 cancellation against total tax bill
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100% cancellation of day 1 against passive earnings
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Unused losses
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Carried forward as net operating loss (NOL)
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Suspended and extended for passive income
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The victory of the “exit”
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Standard Capital Gains/Recapture Rules
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Losses released to offset income upon disposition
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The goal of the 5-horse portfolio is to have enough exits for the law of averages to start working in your favor. Let’s look at the first six months of operating a 5 horse stable as a 5% owner.
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Scenery
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Milestone
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Cash Impact
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Total disbursement
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Net capital at risk
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Day 1
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Initial investment
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-$10,000
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$10,000
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$10,000
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Day 2
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100% tax cancellation*
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+$3,700
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$10,000
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$6,300
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Months 1-6
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Training and maintenance
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-$6,000
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$16,000
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$12,300
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Months 1-6
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Accumulated earnings
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+$7,750
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$16,000
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$4,550
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Based on a 37% tax bracket and a 5% share. Assumes “Material Participation” and five horses starting once every 6 weeks.
Don’t get rid of your ETFs or cryptocurrencies; Instead, consider claiming horses as a tool for diversification. When the stock market is choppy, the “industrial” circuit on the track keeps moving.
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Feature
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Real estate
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Private equity
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Claiming horses
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Tax profit
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27 years
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Zero (locked)
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Immediate
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Income
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Monthly
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5-7 years
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4-6 weeks
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Exit
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More than 60 days
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Event-based
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30 day cycle
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Correlation
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Medium level
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Linked to the market
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Low/None
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The biggest risk in most alternative assets is getting locked out. If you buy a rental property, you’re stuck until you find a buyer. In a claim society, your exit strategy is the Claim Box. When claiming races, by definition, racehorses are for sale.
The racehorse ownership model presented here is aimed at the investor who values active turnover and transparency. In terms of investment, you get an early tax shield, a monthly bonus
“dividend” cycle and an asset that behaves independently of the stock and bond markets.
While others wait for 10-year exits, the claimant investor is cashing checks at the finish line. Therefore, owning racehorses is the “alternative to alternative investments.”
Rob Isbitts is a semi-retired advisor and fund manager. Find your investment research at ETFYourself.com. To copy and market Rob’s portfolios, check out the new PiTrade app. His new blog on racehorse ownership as an alternative asset is on HorseClaiming.com.
On the date of publication, Rob Isbitts had no (directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are for informational purposes only. This article was originally published on Barchart.com
