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  1. #1
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    Default Tax basis of horse for hobby income

    I have one foal that I bred specifically to sell. He had a rough start and I may already have more vet bills in him than I will get back in the sales price.
    With hobby income, is there a concept of a "basis" for a horse so the income is adjusted accordingly? Or am I stuck with deducting everything on a schedule A (expenses above 2% of adjusted income) and hoping for the best?
    "The mighty oak is a nut who stood its ground"

    "...you'll never win Olympic gold by shaking a carrot stick at a warmblood..." see u at x



  2. #2
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    If you are engaged in a hobby, and the hobby resulted in your making money, you're required by the IRS to report that income. But if you're engaged in a hobby, and in fact, your hobby costs you more than the amount of money received for that hobby, you won't be required to report anything to the IRS. And you also will not be allowed to deduct the expenses related to that hobby. Let's take a little example. Let's say you're in the process, and you like carving little wooden ducks. And you spent about one hundred dollars on supplies to make the duck, and you sold the duck for two hundred dollars. One hundred dollars would be taxable. But if you spent a hundred dollars on the duck, and you sold it for eighty dollars, there would be no advantage, no deduction, and no tax advantage for you. Again, hobbies can be taxable if you show a profit.

    Your expenses would start with breeding expenses for the foal's mother.



  3. #3
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    Aug. 25, 2007
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    As a general rule, with a "hobby" you are allowed to deduct expenses but only to the extent of income.

    You establish your "basis" for hobby goods and services the same way a comercial entity would.

    IIRC there's an IRS publication on hobby income and and deductions. Google may help you find it.

    G.



  4. #4
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    Income is not the same as profit. I'm pretty sure the income has to be reported regardless of whether it represents a profit after expenses for the hobby.
    "The mighty oak is a nut who stood its ground"

    "...you'll never win Olympic gold by shaking a carrot stick at a warmblood..." see u at x



  5. #5
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    NO - you only have to report hobby income if it exceeds your expenses. INCOME in the hobby category is ONLY what your would make as profit. If you are running a business income would be reported as whatever you take in, and you would also be able to deduct ALL expenses. That is NOT the case for the IRS when reporting hobby income.

    Read this; http://www.irs.gov/faqs/faq/0,,id=199650,00.html



  6. #6
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    Quote Originally Posted by Equibrit View Post
    NO - you only have to report hobby income if it exceeds your expenses. INCOME in the hobby category is ONLY what your would make as profit. If you are running a business income would be reported as whatever you take in, and you would also be able to deduct ALL expenses. That is NOT the case for the IRS when reporting hobby income.

    Read this; http://www.irs.gov/faqs/faq/0,,id=199650,00.html
    Excellent!! This really made my day.
    Thanks Equibrit!!
    "The mighty oak is a nut who stood its ground"

    "...you'll never win Olympic gold by shaking a carrot stick at a warmblood..." see u at x



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