Tax Law Insights

The "hobby loss" rules of Internal Revenue Code Section 183 are commonly overlooked limitations that restrict the amount of loss a taxpayer may claim from an "activity not engaged in for profit" - i.e., a hobby. The definition of these activities is framed in the negative; a hobby is any activity other than those for which losses are allowed under Section 162 (ordinary and necessary business expenses) and Section 212 (investment expenses).

Generally, Sections 162 and 212 business and investment expenses can not only offset the income generated by those activities, but net losses over ...