University of Maryland Extension

Frequently Asked Questions: What Exactly is a Hobby Loss?

Paul Goeringer

Photo by Edwin Remsberg

This post should not be construed as legal advice or tax advice

            I do not set myself out to be a tax expert, but at times I attempt to explain some aspects of tax law.  Today we are going to discuss when you can take a business expense deduction on your taxes for your farm businesses.  On the other hand, hobby losses and expenses from hobbies cannot be deducted from your income taxes (wouldn’t we all like to deduct expenses from our favorite pastimes on our taxes?).  But when a business is considered a business and when it is considered a hobby is an issue the U.S. Tax Court has dealt with repeatedly. 

According to the 2012 Census of Agriculture, 61.5 percent of all Maryland farm operators (and 62.2 percent of all U.S. farm operators) work off the farm in some capacity.  Many agricultural producers may have full time off-farm jobs and only farm on the weekends or use vacation days to manage the farm.  Having a full time off-farm job does not automatically qualify your farm as a hobby (although to many of you it may be both a business and a hobby).  The Internal Revenue Service (IRS) has developed factors to determine if the activity is a business or a hobby.

To continue reading click over to the Maryland Risk Management Education blog.


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