Hobby Loss Deductions on Your Tax Return: What You Need to Know Before the IRS Comes Knocking

ARTICLE | August 04, 2026

If you run a sideline activity that generates losses, the IRS may not see it the way you do. Under current federal tax law, deductions related to hobby activities are fully disallowed, a restriction that has grown more consequential following tax law changes enacted in 2017 and again in 2025. That does not mean you are out of options. If your activity qualifies as a for-profit business, you may still be able to deduct those losses. Understanding the distinction, the safe-harbor rules that can protect you, and the factors the IRS weighs when making that determination is critical.

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