Hobby Loss Provision
(IRC Section 183)

The Internal Revenue Code Section 183 says that if your horse activity is a legitimate “for profit” business you can deduct losses from the horse activity from unrelated income, depending on certain facts and circumstances surrounding it. If your horse activity is classified as a “hobby” and not a business, any losses from the horse activity can only be deducted from income generated by the horse activity or other passive income.

To be classified as a “for profit business” there must be the sincere intention of making a profit in the business. Intention along with the manner in which the horse activity conducts business is crucial - so much so that the IRS and tax courts primarily look to nine factors to determine if a horse activity is a business. The nine factors are:

1. The manner in which the taxpayer carries on the activity.
2. The expertise of the taxpayer and/or his or her advisors.
3. Time and effort expended by the taxpayer in carrying on the activity.
4. Expectation that assets used in the activity may appreciate in value.
5. The success of the taxpayer in carrying on other similar or dissimilar activities.
6. The taxpayer’s history of income or losses with respect to the activity.
7. The amount of occasional profits, if any, which are earned.
8. The financial status of the taxpayer.
9. Elements of personal pleasure or recreation.

If a horse owner has a sincere intention of making a profit, Equine Business Resources LLC can help them develop management practices that align their horse activity to that of a profit seeking business.