A business which has a net operating loss in one taxable year can carry the loss back to offset taxable income in the two preceding tax years or carry the loss forward to offset future taxable income for up to 20 years. Hobby Losses Hobby losses are generally deductible only to the extent of income produced by the activity. Expenses incurred that are otherwise deductible without regard to the existence of a business or profit motive (taxes, interest, casualty losses, etc.) are deductible regardless of the amount of hobby income. o Such deductions reduce the amount of hobby income available to offset other hobby deductions.
o Other hobby expenses are deductible in an amount equal to the excess of hobby income over deductions otherwise allowable with regard to profit motive. Home Office Expenses For personal home office expenses to be deductible, a portion of a personal residence must be used exclusively on a regular basis (1) as the principal place of business for any trade or business of the taxpayer (2) as a place of business which is used by patients, clients, or customers (3) in the case of a separate structure which is not attached to the dwelling unit, in connection with the taxpayer's trade or business. If the taxpayer is an employee, the exclusive use test must be for the convenience of the employer and not merely for the convenience of the employee. The Taxpayer Relief Act of 1997 expanded the definition of "principal place of business" for tax years beginning after December 31, 1998. Vacation Home Expenses Special rules limit the amount of rental expenses deductions that may be taken by an individual taxpayer (investor) on a residence that is rented out for part of a year and used for personal purposes during other parts of the year. If a personal residence is rented out less than 15 days during the year, any rental income received is excluded from gross income and no rental expense deductions are allowed. If a residence is rented out during the year for more than 14 days, then the property will either be a personal residence or rental property (which could provide a deductible loss subject to the passive loss rules).
- Spring '14
- Business, Taxation in the United States, passive activity