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15800: Deducting Hobby Expenses (Drake17 and prior)


1040 Individual Data Entry

If I have a hobby that I invested income into, where can I deduct the expenses?

If you have a hobby that generates income and was reported on your tax return, the IRS allows you to deduct this income. You can deduct this as an itemized deduction on Schedule A for the ordinary and necessary expenses up to the amount of related income and in consideration of special rules and limitations. If you do not itemize deductions, you cannot deduct hobby expenses.

The IRS says:

Allowable Hobby Deduction: Within certain limits, taxpayers can usually deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.

Limits on Hobby Expenses: Generally, taxpayers can only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than its income, taxpayers have a loss from the activity. However, a hobby loss can’t be deducted from other income.

How to Deduct Hobby Expenses.  Taxpayers must itemize deductions on their tax return to deduct hobby expenses. Expenses may fall into three types of deductions, and special rules apply to each type.

See IRS Small Business Week Tax Tip 2017-04, for further details.

Note: The Tax Cuts and Jobs Act implementations beginning tax year 2018 disallow losses incurred by hobbies.

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