Hobby Loss


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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.
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In another horse-activity hobby loss case, Dennis, (28) a husband and wife used QuickBooks to keep the books and records for three distinct activities: (1) horse breeding, (2) hay baling, and (3) cosmetology.
165(d) is analogous to the hobby loss rules of [section] 183:
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.
To avoid hobby loss classification, CPAs can help their clients or employers develop a basic business plan for the entity that owns the aircraft.
If taxpayers with economic losses survive the hobby loss challenge, they will be confronted with the material participation requirements of IRC section 469.
However, hobby loss, passive activity and interest expense rules, as well as court cases, also determine allowable vacation home rental deductions.
Determine whether the activity is possibly subject to the hobby loss limitations.
Shareholders face several hurdles, however, before a loss may be used: the hobby loss (Sec.
183 hobby loss rules may limit the deductibility of expenses related to the rental property, unless the taxpayer can demonstrate a profit motive.
There are several hurdles that the shareholders must face before a loss may be used: hobby loss rules (Sec.