A recent New York Times article about Rafalca, Ann Romney's Olympic-quality dressage horse, stated that "the Romneys declared a loss of $77,000 on their 2010 tax returns for the share in the care and feeding of Rafalca, which Mrs. Romney owns with Mr. Ebeling’s wife, Amy, and a family friend, Beth Meyers."
The way this works is that the Romneys, the Ebelings, and Beth Meyers have together formed a corporate entity called "Rob Rom Enterprises LLC," which owns Rafalca and pays for his upkeep. The Romneys reported $77,731 in "passive losses" related to their investment in Rob Rom Enterprises, but of that their account only deemed $50 to be actually eligible for deduction. The forms don't explain the thinking behind that, but it's probably because losses from your horse corporation can't be used to offset unrelated income. If Rafalca had brought in more money, then Rafalca's care and feeding expenses could be deducted from that income, but in 2010 Rob Rom Enterprises doesn't seem to have had much income.
But there's a twist!
[T]he tax code lets you carry disallowed hobby losses forward to offset hobby income in future years. Now that the Romneys' horse is an Olympian, his owners could presumably be paid quite handsomely for his services at the stud farm. Consequently, Mitt and Ann may soon have some income that they actually can use that nearly $78,000 loss to offset--i.e., finally getting the tax deduction that they're taking the heat for today.
I think if Romney's taking heat for anything, it's simply that in his own tax policy documents, he's making big assumptions about the possibility of cutting tax rates and eliminating tax deductions without saying much about which kinds of deductions he wants to eliminate. Is something like forward-carrying of horse-related expenses the kind of thing he would want to eliminate, or would that count as a burdensome tax on job-creating investment and capital formation?