Hobby Loss Rules (Section 183)
Hobby loss rules prevent deducting hobby losses against other income, with the safe harbor presumption of profit in 3 of 5 years (2 of 7 for horses).
Exam Tip
Safe harbor: profit 3 of 5 years (2 of 7 for horses). Nine factors test. TCJA eliminated hobby expense deductions (2018-2025).
What are Hobby Loss Rules?
If not engaged in for profit, losses cannot offset other income.
Safe Harbor
- General: Profit 3 of 5 years
- Horses: Profit 2 of 7 years
Nine-Factor Test
IRS evaluates profit motive using factors like businesslike operation, expertise, time spent.
Current Treatment (TCJA through 2025)
Hobby expenses NOT deductible at all. Hobby income still taxable.
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