What is Hobby Loss?
A non-deductible loss incurred as a result of doing an activity for personal pleasure instead of for profit. A taxpayer cannot deduct the hobby loss as a business loss. A “”hobby loss rule”” is used to determine if an activity is a hobby or a business. Read more for examples and further explanation including related video clips and also comments
Example explains Hobby Loss
The “”hobby loss rule”” states that if an activity is profitable in three years out of five then it can be treated as a business in the one or two year(s) that a loss was realized.
For example if a man builds birdhouses, but only made a profit one year out of the last five then the losses are considered a hobby loss. The law does not prohibit you from making deductions if you are prepared to argue that the losses were created while attempting to make profit.
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