That is not exactly correct.
As long as you are in the business - all losses are deducted against your other taxable income regardless of how many years you had losses.
However - the IRS may question if that is a business activity - your activity is considered a business if it is carried on with the reasonable expectation of earning a profit.
An activity is presumed carried on 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).
If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.
If you are not sure whether you are running a business or simply enjoying a hobby, here are some of the factors you should consider:
- Does the time and effort put into the activity indicate an intention to make a profit?
- Do you depend on income from the activity?
- If there are losses, are they due to circumstances beyond your control or did they occur in he start-up phase of the business?
- Have you changed methods of operation to improve profitability.
- Do you have the knowledge needed to carry on the activity as a successful business?
- Have you made a profit in similar activities in the past?
- Does the activity make a profit in some years?
- Do you expect to make a profit in the future from the appreciation of assets used in the activity?
So the main question would be if that is a business or hobby activity. Hobbies, also called not-for-profit activities, are those activities that are not pursued for profit.