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By Lisa Morris
As the Managing Director of a single-family office, I attend numerous family office conferences and belong to several family office networks. The same topics come up every time — AI, data centers, energy markets, digital assets, real estate, sports investing, private credit, where to relocate for the best tax treatment, golden visas, liquidity concerns in the private markets. I never hear anything about pinhooking.
To be honest, I am only really aware of it because my brother, Seth Morris, is GP of the SMT Equine Fund and an expert bloodstock agent and pinhooker. So now I am sharing this family knowledge with you.
WHAT IS PINHOOKING?
For investors comfortable with alternative assets — private credit, fine wine, rare whiskey, collectible cars — the thoroughbred industry offers a lesser-known cousin: pinhooking, the industry’s original flip trade. It works almost exactly like a real estate flip, except the asset eats, sleeps, gets sick, and occasionally runs faster than anyone expected.
Pinhooking is the practice of buying a young, unraced thoroughbred with the intent to resell it later at a higher price, after a period of development and training. The two most common versions are weanling-to-yearling pinhooking, where a foal is purchased and resold roughly a year later, and yearling-to-two-year-old pinhooking, where a yearling is put through early training and resold as a two-year-old — often after a public “breeze” that showcases its speed to prospective buyers.
The logic is straightforward: identify an undervalued horse, invest in its development, and sell into a stronger segment of the market. What makes it a trade rather than a passive holding is the short time horizon — most pinhooks resolve within twelve to eighteen months, offering liquidity much sooner than traditional venture investments.
WHY SHOULD FAMILY OFFICES LEARN ABOUT THIS?
The real headline benefit: 100% bonus depreciation, made permanent.
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, permanently restored it for qualifying property placed in service after January 19, 2025 — and a companion pair of horse-specific bills, the Race Horse Cost Recovery Act and the Racehorse Tax Parity Act, locked in accelerated depreciation schedules and shortened holding periods that had previously been temporary. For a horse business, that means the full purchase cost of a qualifying horse, plus related capital expenditures like training and equipment can be deducted in the very first year of ownership. Because bonus depreciation isn’t capped by taxable income, it can create or increase a net operating loss, making it a powerfully effective tool for a high-income investor.
Separately, the Race Horse Cost Recovery Act made permanent a compressed three-year depreciation schedule for racehorses, regardless of the horse’s age when placed in service, applied retroactively to horses placed in service after December 31, 2022. Combined with 100% bonus depreciation, this gives an owner both a fast write-off schedule and, in most cases, the ability to take the entire deduction immediately.
The Racehorse Tax Parity Act separately shortened the holding period for a horse to qualify as a Section 1231 asset — favorable long-term capital gain treatment on sale — to just 12 months.
Many tax-sophisticated pinhooking operations don’t run a pure flip model. Structures involving active training, a public breeze, or limited racing activity before resale make a stronger case for treating the horse as a depreciable business asset rather than pure inventory — which is also, not coincidentally, close to how yearling-to-two-year-old pinhooking already works in practice.
Regardless of how a horse is classified, the ordinary costs of running the operation — training fees, veterinary care, boarding, transport, and sales commissions remain deductible as ordinary business expenses provided the activity is conducted as a genuine for-profit business. For an active operation buying and selling multiple horses a year, these operating deductions are often the larger and more reliably available benefit.
Two more changes from the same 2025 legislation are worth knowing: the Qualified Business Income deduction for pass-through entities rose from 20% to 23%, benefiting investors holding a pinhooking operation through an LLC or partnership; and the federal estate tax exemption was permanently set at $15 million per person starting in 2026 — relevant for anyone treating a breeding or bloodstock operation as a generational asset rather than a short-term trade.
THE NUMBERS, HONESTLY STATED
Pinhooking’s return profile is volatile, and the data bears that out. Operators who pinhooked in volume — twenty or more horses in a season — fared meaningfully better than those who bet on one or two, with the top volume operator in that dataset posting a 51% average return across its whole book.
That pattern is the single most important fact for anyone evaluating pinhooking as an investment: it behaves like a portfolio of long-shot venture bets. A handful of standout results carry the average, while a large share of individual positions yield modest gains or have losses.
“$175,000 became $975,000.”
— my brother’s Constitution Colt, a sale that anchored his portfolio and offset every smaller sale in the book
HOW INVESTORS CAN PARTICIPATE
Very few outside investors buy and develop individual horses themselves; the expertise required — reading a pedigree, judging conformation, managing a training and sales calendar — is specialized enough that most capital enters through managed vehicles instead.
—Bloodstock agencies increasingly run pooled pinhooking partnerships, structured much like a small private fund.
—Investors commit capital — recent examples set minimums around $25,000.
—The agency deploys it across a diversified slate of horses rather than a single one.
—Proceeds are distributed, or reinvested into the next buying cycle, as horses sell.
Spreading capital across many horses is the practical way to convert an individually high-variance bet into a portfolio with a more survivable range of outcomes.
THE BOTTOM LINE
Pinhooking sits closer to venture investing than to any conventional real asset. For investors comfortable with high-variance alternative allocations, pinhooking offers real upside, a short-term hold of capital, and a defined tax framework. The 2025–2026 tax environment for equine investment is genuinely more favorable and more stable than it has been in years, and that’s a real tailwind behind the recent record thoroughbred auction results.
Horses are also fun. If you invest with the right people, you are usually treated to nights out at the races and chances for your kids to come see their horses being trained before they are sold.
Many family offices are chasing after the same deals.
Perhaps it is time to chase horses instead.
Disclosure: This article is for informational purposes only and does not constitute tax or legal advice. Equine tax treatment depends heavily on the specific facts of how an operation is structured and conducted; anyone considering a pinhooking or broader equine investment should work with a tax professional experienced in the equine industry before relying on any of the provisions described above
