Hobby Loss Law and Legal Definition

Hobby Loss is a loss from a business activity engaged in more for enjoyment than for profit. It can be deducted against annual income only. A taxpayer cannot deduct the hobby loss as a business loss. A "hobby loss rule" is used to determine whether an activity is a hobby or a business. The "hobby loss rule" states that if an activity is profitable in three years out of five then it can be treated as a business in the one or two years that a loss was realized.