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.
Because the activities for which deductions are claimed are often personal recreational pastimes, this is referred to as the hobby loss rule
The "hobby loss rule
," which is typically invoked when the IRS believes that a particular activity is more of a hobby than a legitimate business, disallows the deduction of an activity's expenses if it is not conducted for profit.
If fantasy sports are not treated as gambling, the hobby loss rules
apply for fantasy players [assuming the player does meet the requirements to be a professional player under Internal Revenue Code (TRC) section 183].
Thus, the IRS can assert that the losses incurred in years 1 and 3 must be reported under the hobby loss rules
(unless Tcan prove otherwise under the subjective factors mentioned in the regulations).
183 hobby loss rules
, the deductible expenses of a hobby are limited to the amount of income the hobby generates.
165(d) is analogous to the hobby loss rules
of [section] 183:
Conversely, the hobby loss rules
act to prevent the expensing of what otherwise would be personal expenses disguised as "valid" business expenses, thereby causing significant losses of revenue to the Treasury.
Another potential grounds for disallowance of the rental loss is if it is determined that the rental of the unit was an "activity not engaged in for profit." Under the "hobby loss rules
" of Section 183, a refutable presumption arises that unless an activity produces a profit (i.e., gross income in excess of deductions) in three of the prior five taxable years, that activity is not "engaged in for profit."(10) If this is the case, the deduction of rental expenses will be limited to the gross income derived from the rental of the property.(11)
If a hobbyist engages in some sales transactions and reports this as a dealer, he might be subject to the hobby loss rules
, which could vitiate the losses.
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:
If the activity is not engaged in for profit, it is subject to the hobby loss rules