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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15187
Experience:  15years with H & R Block. Divisional leader, Instructor
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Need a tax professional, My clients wife has been boarding

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Need a tax professional,
My client's wife has been boarding horses and giving horse riding lessons for 30 years.
She has run it as a business and has not had a profit for 10 years.
Because of the bad economy and the rising cost of feed, she will keep having losses.
The IRS requires the horse business to have 2 years of profit, out of 7 years. How strict is the IRS on these types of losses? The 2009 loss was -$22,285 with a gross income of $17,565. What would you advise for 2010, since there is a loss of -$24,000, on an income of $15,820.
Thank You,
Fred Shaffer
Submitted: 5 years ago.
Category: Tax
Expert:  Robin D. replied 5 years ago.

Robin D :

Hello and thank you for using Just Answer.
The IRS is very serious and strict about the business versus hobby rules on these losses. I personnally can speak to the strict adherence to that portion of the code.

Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”
But if she has been doing this for 30 years and for those first 20 it was profitable then that is not the same thing. Because of that the limitations for the 2 out of 7 years would no longer apply. The ruling is not to look at each 7 year period and see if 2 of those years were profitable. If out of the first 7 years, 2 were profitable then she has pasted the test. Of course now is the time to see if throwing more money down the business tube is personally responsible.

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