If an individual, partnership, estate, trust, or an S corporation engages in an activity that is not conducted as a for-profit business, deductions are limited to the amount of income from the activity. If an activity is considered a for-profit business, deductions can exceed income, allowing the resulting loss to offset other income. Regulations contain a list of factors to be considered in determining whether an activity is engaged in for profit. The factors include:
1) The manner in which the taxpayer carries on the activity,
2) The expertise of the taxpayer or his advisers,
3) The time and effort expended by the taxpayer in carrying on the activity,
4) The expectation that assets used in the activity may appreciate in value,
5) The success of the taxpayer in carrying on other similar or dissimilar activities,
6) The taxpayer’s history of income or losses with respect to the activity,
7) The amount of occasional profits, if any, which are earned,
8) The financial status of the taxpayer, and
9) Whether elements of personal pleasure or recreation are involved.
No single factor is determinative.