Legal Definitions - hobby loss

A hobby loss is a type of loss that occurs when an individual engages in an activity that is not intended to generate a profit. This type of loss can be deducted against annual income, but it is not tax deductible in the same way that business expenses are.

According to the Internal Revenue Service (IRS), a hobby is an activity that is done for enjoyment rather than for profit. Examples of hobbies might include things like painting, playing music, or collecting stamps.

For example, let's say that John enjoys woodworking and spends a significant amount of time building furniture in his garage. While he occasionally sells some of his pieces, he does not rely on this income to support himself. In this case, any losses that John incurs from his woodworking hobby would be considered hobby losses and could be deducted against his annual income.

It is important to note that there are certain rules and limitations surrounding the deduction of hobby losses. For example, the IRS may scrutinize deductions for hobby losses more closely than other types of deductions, and individuals may need to demonstrate that they have made a good faith effort to turn their hobby into a profitable business in order to qualify for the deduction.