Checklist of Profit Motive Factors for Hobby Loss Rules

The hobby loss rules under IRC Sec 183 can be an issue in a few industries that seem to draw more attention than others…

Examples of possible Code Sec. 183 activities include, but are not limited to:

  • fishing,
  • horse racing,
  • horse breeding,
  • farming,
  • motor-cross racing,
  • auto racing,
  • craft sales,
  • bowling,
  • stamp collecting,
  • dog breeding,
  • yacht charter,
  • artists and entertainers,
  • gambling,
  • direct sales,
  • photography,
  • writing,
  • airplane charter, and
  • rentals

So then how does one overcome this presumption of “hobby” vs that of trade or business activity… the following checklist may be able to help with this issue?

  • The manner in which the taxpayer conducts the activity. Is there a legitimate intent to make a profit? Are accurate books and records maintained?
  • The expertise of the taxpayer. Does the taxpayer have any prior experience, do they seek the advice of others?
  • The time and effort expended by the taxpayer in the activity. Does the taxpayer spend substantial time in the activity? Were employee’s hired to assist in the operations?
  • The expectation that assets used in the activity will appreciate.
  • The pr