Hobby vs. Business Evidence Organizer
Check the rebuttable profit presumption and assemble evidence for all nine regulatory factors—without manufacturing a verdict or score.
How does the IRS distinguish a business from a hobby?
Section 183 provides a rebuttable presumption after profit in 3 of 5 consecutive years, or 2 of 7 for specified horse activities. Outside and even within that presumption, neither one factor nor a majority decides profit motive; all facts and circumstances control.
- The statutory presumption is rebuttable
- Nine regulatory factors organize evidence, not votes
- Hobby income is reported; §67(h) disallows hobby-expense miscellaneous deductions
1. Consecutive-year history
The horse rule applies only when the activity consists mainly of the listed horse activities.
Enter net operating profit as positive and loss as negative. A complete consecutive 5-year window is required to report the 3-year presumption.
2. Nine-factor evidence file
Choose only what your records support, then name the actual document, date, person, or event. The labels organize evidence; they are not votes.
Organizer status: empty
Organizer status: empty
Organizer status: empty
Organizer status: empty
Organizer status: empty
Organizer status: empty
Organizer status: empty
Organizer status: empty
Organizer status: empty
No automated verdict
This organizer never concludes that you are a business or a hobby. It does not decide whether activities must be grouped, test §162 or §212, value asset appreciation, or evaluate credibility. Neither one factor nor a majority decides profit motive; all facts and circumstances control.
Hobby-loss questions
Does profit in three of five years prove that an activity is a business?
No. Section 183 creates a rebuttable presumption when gross income exceeds deductions in at least 3 of 5 consecutive years. The government can establish the contrary, and the regulation still requires all facts and circumstances.
What is the horse-activity presumption?
For an activity consisting mainly of breeding, training, showing, or racing horses, §183(d) substitutes 2 profitable years in a 7-year period.
Do most of the nine factors have to favor me?
No. Neither one factor nor a majority decides profit motive; all facts and circumstances control. This organizer identifies evidence gaps and contradictions but never decides whether an activity is a business or hobby.
What happens to expenses if an activity is treated as a hobby?
Hobby income is still reported. Hobby expenses are miscellaneous itemized deductions, and IRC §67(h) disallows miscellaneous itemized deductions for tax years beginning after 2017; the 2025 amendment removed the former sunset. Deductions you could claim anyway, such as home mortgage interest or state and local property taxes on Schedule A, stay deductible under §183(b)(1), subject to their own limits (including the SALT cap).
Related self-employment tools
Sources & References
Primary references used for this content
IRC §183 — rebuttable profit presumption
Profit presumption, factor evidence, or reporting authority
View on law.cornell.edu
Treas. Reg. §1.183-2 — facts-and-circumstances factors
Profit presumption, factor evidence, or reporting authority
View on govinfo.gov
IRS — hobby or business facts and records
Profit presumption, factor evidence, or reporting authority
View on irs.gov
IRC §67(h) — miscellaneous itemized deductions after 2017
Profit presumption, factor evidence, or reporting authority
View on law.cornell.edu
IRS Publication 17 — hobby expenses
Profit presumption, factor evidence, or reporting authority
View on irs.gov
Schedule C instructions — nonbusiness activity income
Profit presumption, factor evidence, or reporting authority
View on irs.gov
✓Rules checked September 6, 2026 against IRC §§183 and 67(h), Treas. Reg. §1.183-2, current IRS hobby guidance, 2025 Publication 17, and 2025 Schedule C instructions.
Disclaimer: This calculator provides estimates for educational purposes only. Not tax, legal, or financial advice. Results may vary based on your specific circumstances. Consult a qualified CPA or tax professional for personalized guidance.