topic Operating Loss in Business & farm

Operating Loss

Michael5371 — Wed, 11 Feb 2026 09:36:35 GMT

When submitting my 2023 return a note came about indicating that if I operated at a loss the IRS will consider my business a hobby. How long have I to show a profit before this happens?

Thanks

Re: Operating Loss

Anonymous_ — Wed, 22 May 2024 20:10:59 GMT

See https://www.irs.gov/newsroom/know-the-difference-between-a-hobby-and-a-business

and

https://www.irs.gov/pub/irs-news/fs-08-23.pdf

An activity is presumed for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses).

Re: Operating Loss

RSUMan — Wed, 22 May 2024 20:08:43 GMT

A key consideration for the IRS is: Is the activity profitable in some years? Also. could the activity become profitable even though it is a highly speculative venture.

If the activity appears to be for personal enjoyment and not to make a profit, the IRS can challenge the claiming of losses.

The IRS gives guidance on the difference between a business and a hobby here:

https://www.irs.gov/newsroom/know-the-difference-between-a-hobby-and-a-business