For retired wealthy taxpayers whose pursuits have led to boat chartering, horse breeding or running a vineyard, there is a glimmer of hope.
IRC section 183 allows hobby activity expenses to be deducted but only to the extent of hobby income (assuming it is a not-for-profit activity). Because the Internal Revenue Code does not identify IRC section 183 as an above the line deduction; instead, hobby activity expenses must be claimed as a miscellaneous itemized deduction, if possible. Unfortunately, the Tax Cuts and Jobs Act suspended the deduction of all miscellaneous itemized deductions until 2025 – and this includes the hobby activity expenses even though the hobby income from the same activity remains taxable as “other Income.”
Recently, the 2021 Tax Court case of Gregory v Commissioner T.C. Memo. 2021-115, was appealed to the 11th Circuit Court of Appeals. In that case, the taxpayer argued that IRC section 183, as a specific statutory provision, should in effect preempt IRS section 67 (which defines itemized deductions), thus allowing for these expenses under section 183 as “above the line” deductions.
