# § 183. Activities not engaged in for profit
**(a)** **General rule** In the case of an activity engaged in by an individual or an S corporation, if such activity is not engaged in for profit, no deduction attributable to such activity shall be allowed under this chapter except as provided in this section.
**(b)** **Deductions allowable** In the case of an activity not engaged in for profit to which subsection (a) applies, there shall be allowed—
**(1)** the deductions which would be allowable under this chapter for the taxable year without regard to whether or not such activity is engaged in for profit, and
**(2)** a deduction equal to the amount of the deductions which would be allowable under this chapter for the taxable year only if such activity were engaged in for profit, but only to the extent that the gross income derived from such activity for the taxable year exceeds the deductions allowable by reason of paragraph (1).
**(c)** **Activity not engaged in for profit defined** For purposes of this section, the term “activity not engaged in for profit” means any activity other than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212.
**(d)** **Presumption** If the gross income derived from an activity for 3 or more of the taxable years in the period of 5 consecutive taxable years which ends with the taxable year exceeds the deductions attributable to such activity (determined without regard to whether or not such activity is engaged in for profit), then, unless the Secretary establishes to the contrary, such activity shall be presumed for purposes of this chapter for such taxable year to be an activity engaged in for profit. In the case of an activity which consists in major part of the breeding, training, showing, or racing of horses, the preceding sentence shall be applied by substituting “2” for “3” and “7” for “5”.
**(e)** **Special rule**
**(1)** **In general** A determination as to whether the presumption provided by subsection (d) applies with respect to any activity shall, if the taxpayer so elects, not be made before the close of the fourth taxable year (sixth taxable year, in the case of an activity described in the last sentence of such subsection) following the taxable year in which the taxpayer first engages in the activity.
**(2)** **Initial period** If the taxpayer makes an election under paragraph (1), the presumption provided by subsection (d) shall apply to each taxable year in the 5-taxable year (or 7-taxable year) period beginning with the taxable year in which the taxpayer first engages in the activity, if the gross income derived from the activity for 3 (or 2 if applicable) or more of the taxable years in such period exceeds the deductions attributable to the activity (determined without regard to whether or not the activity is engaged in for profit).
**(3)** **Election** An election under paragraph (1) shall be made at such time and manner, and subject to such terms and conditions, as the Secretary may prescribe.
**(4)** **Time for assessing deficiency attributable to activity** If a taxpayer makes an election under paragraph (1) with respect to an activity, the statutory period for the assessment of any deficiency attributable to such activity shall not expire before the expiration of 2 years after the date prescribed by law (determined without extensions) for filing the return of tax under chapter 1 for the last taxable year in the period of 5 taxable years (or 7 taxable years) to which the election relates. Such deficiency may be assessed notwithstanding the provisions of any law or rule of law which would otherwise prevent such an assessment.
---
**Source Credit**: (Added Pub. L. 91–172, title II, § 213(a), Dec. 30, 1969, 83 Stat. 571; amended Pub. L. 92–178, title III, § 311(a), Dec. 10, 1971, 85 Stat. 525; Pub. L. 94–455, title II, § 214(a), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1549, 1834; Pub. L. 97–354, § 5(a)(23), Oct. 19, 1982, 96 Stat. 1694; Pub. L. 99–514, title I, § 143(a), Oct. 22, 1986, 100 Stat. 2120; Pub. L. 100–647, title I, § 1001(h)(3), Nov. 10, 1988, 102 Stat. 3352; Pub. L. 113–295, div. A, title II, § 221(a)(36), Dec. 19, 2014, 128 Stat. 4042.)
## Editorial Notes
### Amendments
2014—Subsec. (e)(1). struck out “For purposes of the preceding sentence, a taxpayer shall be treated as not having engaged in an activity during any taxable year beginning before .” at end.
1988—Subsec. (e)(2). substituted “activity for 3 (or 2 if applicable)” for “activity for 2”.
1986—Subsec. (d). substituted “3” for “2” before “or more” in first sentence and “ ‘2’ for ‘3’ and ‘7’ for ‘5’ ” for “the period of 7 consecutive taxable years for the period of 5 consecutive taxable years” in second sentence.
1982—Subsec. (a). substituted “an S corporation” for “an electing small business corporation (as defined in section 1371(b))”.
1976—Subsecs. (d), (e)(3). , struck out “or his delegate” after “Secretary”.
Subsec. (e)(4). , added par. (4).
1971—Subsec. (e). added subsec. (e).
## Statutory Notes and Related Subsidiaries
### Effective Date of 2014 Amendment
Amendment by effective , subject to a savings provision, see , set out as a note under .
### Effective Date of 1988 Amendment
Amendment by effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, , to which such amendment relates, see , set out as a note under .
### Effective Date of 1986 Amendment
Amendment by applicable to taxable years beginning after , see , set out as a note under .
### Effective Date of 1982 Amendment
Amendment by applicable to taxable years beginning after , see , set out as an Effective Date note under .
### Effective Date of 1976 Amendment
> “The amendments made by this section [amending this section and
>
> ] shall apply with respect to taxable years beginning after
>
> ; except that such amendments shall not apply to any taxable year ending before the date of the enactment of this Act [
>
> ] with respect to which the period for assessing a deficiency has expired before such date of enactment.”
, , , provided that:
### Effective Date of 1971 Amendment
> “The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after
>
> .”
, , , provided that:
### Effective Date
> “The amendments made by this section [enacting this section, amending
>
> , and repealing
>
> ] shall apply to taxable years beginning after
>
> .”
, , , provided that: