Hobby Loss


Also found in: Legal.

Hobby Loss

A loss a taxpayer may not deduct from his/her taxable income because it occurred in the pursuit of personal pleasure. Suppose one sells lemonade for fun on Saturdays and takes a loss in doing so. This will likely be considered a hobby loss because one is not likely to be actively pursuing profit. The IRS applies what is called the "hobby loss rule" to determine whether it considers a loss to be hobby or business related; this rule states that an activity profitable three years out of every five can be considered a business. So the lemonade stand, which may never be profitable, will probably be considered a hobby loss.

Hobby Loss

A nondeductible loss arising from a personal hobby as contrasted with a loss arising from an activity engaged in for profit.
Mentioned in ?
References in periodicals archive ?
Practice tip: While filing Form 5213 allows a taxpayer additional time to establish the existence of a trade or business activity, it also alerts the IRS to a possible hobby loss issue.
hobby loss provision had been unsuccessful and that the approach used by
Deductions permitted by the hobby loss rule are determined and allowed according to the following sequence: (1) amounts allowable under other IRC provisions without regard to whether the activity is profit-motivated (but other IRC provisions limiting the amount of these deductions would apply, such as limitations imposed on deductions for interest payments under IRC Sec.
The hobby loss restriction has been a valued part of the IRS armada for many years, restricting attempts by taxpayers to claim expenses (and thus deductions from income) beyond rather meager income derived from the taxpayers' "pet" projects.
As expected, these reasons coincide with those found in the regulations of the hobby loss sections provided to the participants at the outset of the study.
1.183-2(b)(l) used to determine intent to make a profit under the hobby loss rules to decide whether a taxpayer is a professional gambler:
requires to make informed business decisions." (19) The latter includes "monthly expense reports and income projections." (20) Two recent cases, both dealing with the common hobby loss from horse-related activities, illustrate the court's methods for assessing the taxpayer's QuickBooks records and how the use to which those records are put can produce opposite results.
During the period of temporary rental, the IRS has ruled (and the Tax Court has agreed) that expenses incurred in the renting of the old residence are deductible only to the extent of rental income under the "hobby loss" rules.(3) On the other hand, in a case in which the taxpayer had a profit motive in renting out his old residence, maintained expense records, and actively managed the property, a U.S.
But recent cases that have disallowed "hobby loss" deductions for operating a horse farm demonstrate that professional tax advice is not the only way to establish reasonable cause and good faith.
If the activity is not engaged in for profit, it is subject to the hobby loss rules in Sec.
Blogs that do not generate a profit for three or more years during a five-year period are presumed to not be profit motivated; therefore, they are subject to the hobby loss limitation (Internal Revenue Code [IRC] section 183[d]).
* Aggregating activities to avoid the hobby loss rules.