Hobby Losses

A loss upon the sale of your hobby collection is not tax deductible on your tax return. For hobbies like horse breeding, racing, training etc, showing the test is taxable profits in two tax years out of seven consecutive tax years. But, regardless of whether or not you meet the above taxable profits tests, the IRS may still try to overthrow your argument and rebut the presumption and won’t allow you to do tax deductions on your tax return.

You must make the tax election and then file the form within three tax years of the due date of the first tax return for the activity. The postponement is done until the end of the fourth tax year following the first tax year of the activity. By filing the form you agree to relinquish all statute of restriction issues for that activity. If you lose your money pursuing your hobby, you cannot deduct your financial loss from your other income on your tax return, but you can then deduct your expenses up to the amount of your hobby income on your tax return. But, hobby loss is a considered a miscellaneous tax deduction on your tax returns, and hence it is limited by the 2% of AGI threshold.