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
Comm'r (TCM 2012-115), provides an excellent window into the courts' interpretation of the hobby loss rule
and the nine factors used to determine whether an activity is conducted for profit or business.
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.
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
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.
Proper grouping may help a taxpayer avoid the application of the hobby loss rules
If you choose self-employment over a second job to earn additional income, avoid the hobby loss rules
if you incur a loss.
Aggregating activities to avoid the hobby loss rules
unearned income, hobby loss rules
, preferential rates for capital gains, and the antiquated and punitive $3,000a-year capital loss limitation.