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