In short
Under the hobby loss rules, income from an activity not engaged in for profit is included in gross income, but the related expenses are not deductible, because miscellaneous itemized deductions are permanently eliminated.
Key takeaways
- An activity is presumed to be for profit if it shows a profit in 3 of 5 consecutive years (2 of 7 for horse breeding and racing).
- Factors include how the activity is run, the taxpayer's expertise and time spent, and the history of income or losses.
- A business activity, by contrast, can deduct its expenses and may produce a loss.
Where it's tested
REG: Individual Taxation: Gross Income — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Which of the following items is included in a taxpayer's federal gross income?