Can I deduct my money-losing side business?

Only with a genuine profit motive — §183 disallows losses from hobbies outright. Three profitable years out of five shifts the burden to the IRS; without them, keep business plans, separate books, and expertise on record.

Does §183 apply to rental property?

Rarely — rentals face §469 passive-loss rules and §280A vacation-home limits instead. §183 hunts Schedule C activities: horses, racing, crafts, content, coaching — pursuits that look like funded fun.

What changed for hobbies in 2018?

Everything about the deduction: before TCJA, hobby expenses deducted as miscellaneous itemized deductions to the extent of hobby income. TCJA zeroed that category through 2025 — income in full, expenses at zero.

IRC §183 · 26 U.S.C. §183

IRC §183: Hobby Loss Rule

By Paul D. Diaz, EA, MBA · Updated September 20, 2026

IRC §183 kills deductions for activities not engaged in for profit — and since TCJA, hobby expenses deduct not at all. Three profitable years in five creates the presumption; the nine-factor test decides the rest.

What it governs

Profit motive required — §183 presumes it from 3 profitable years in 5 (2 in 7 for horses)
Nine-factor facts test: expertise, time, history, assets, effort, and more
Hobby expenses: zero deduction since TCJA suspended miscellaneous itemized deductions
Hobby INCOME stays fully taxable — §183 limits deductions, never inclusions

In the GuideFull treatment in Chapter 3 of the Guide (principal treatment) and Chapter 21 — THE TAX CUTTERY® Guide to Federal Income Taxation, Professional Edition (564 pages, 24 chapters).

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Questions this section answers

Can I deduct my money-losing side business?: Only with a genuine profit motive — §183 disallows losses from hobbies outright. Three profitable years out of five shifts the burden to the IRS; without them, keep business plans, separate books, and expertise on record.
Does §183 apply to rental property?: Rarely — rentals face §469 passive-loss rules and §280A vacation-home limits instead. §183 hunts Schedule C activities: horses, racing, crafts, content, coaching — pursuits that look like funded fun.
What changed for hobbies in 2018?: Everything about the deduction: before TCJA, hobby expenses deducted as miscellaneous itemized deductions to the extent of hobby income. TCJA zeroed that category through 2025 — income in full, expenses at zero.

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