Tax Drill $-$ Hobby Losses

Complete the following statements regarding hobby losses.

The Regulations stipulate that

nine

factors should be considered in determining whether an activity is profit$-$seeking or is a hobby. The presence or absence of a factor

is not

by itself determinative of whether the activity is profit$-$seeking or is a hobby. The Code provides a rebuttable presumption that an activity is profit$-$seeking if the activity shows a profit in at least fill in the blank $3$

of the previous fill in the blank $4$

tax years. If these profitability tests are met, the activity is presumed to be a

trade or business

rather than a

personal hobby

$.$

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Business or investment expenses are deductible only if the taxpayer can show that the activity was entered into for the purpose of making a profit. Certain activities can have attributes that make it difficult to determine if the primary motivation for the activity is to make a profit or is for personal pleasure.