---
title: "Is reselling a hobby or a business? IRS factors"
description: "The IRS weighs nine factors, such as how businesslike you are, your time and your profit history. Profit in 3 of 5 years creates a presumption of a business."
canonical: https://resellerindex.com/tax/irs/is-reselling-a-hobby-or-a-business/
last_updated: 2026-10-23
publisher: "The Reseller Index"
---

# Is reselling a hobby or a business for the IRS?

**It turns on whether you do it to make a profit, judged on all the facts: the IRS weighs factors such as whether you run it in a businesslike way with complete books, the time and effort you put in, and your history of profits and losses, and no single factor decides.** An activity that makes a profit in at least 3 of 5 consecutive tax years is presumed to be engaged in for profit, and the Schedule C instructions say a sporadic activity, a not-for-profit activity or a hobby does not qualify as a business.

General information from IRS sources, not tax advice. It doesn't say what you should file; check with a tax professional about your own situation.

Checked against the IRS and eCFR pages listed below on Oct 19, 2026.

## What the IRS says

> "An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity."

[Instructions for Schedule C (Form 1040) (2025)](https://www.irs.gov/instructions/i1040sc), General Instructions; page reviewed or updated Apr 30, 2026.

> "In determining whether an activity is engaged in for profit, all facts and circumstances with respect to the activity are to be taken into account. No one factor is determinative in making this determination."

[26 CFR 1.183-2, Activity not engaged in for profit defined (eCFR)](https://www.ecfr.gov/current/title-26/section-1.183-2), paragraph (b), Relevant factors; up to date as of Oct 15, 2026.

> "You do not need to make a profit to be operating a trade or business but you do need to have a profit motive."

[Business activities](https://www.irs.gov/businesses/small-businesses-self-employed/business-activities), Trade or business; page reviewed or updated Mar 26, 2026.

> "Losses from a hobby aren't deductible from other income."

[Publication 525 (2025), Taxable and Nontaxable Income](https://www.irs.gov/publications/p525), Other Income: Hobby losses; page reviewed or updated Apr 30, 2026.

## The nine factors in the regulation

Treasury Regulation 1.183-2(b) lists the factors that should normally be considered. It says all facts and circumstances count, other factors can matter too, and the answer doesn't come from counting how many factors point each way.

*Factors from 26 CFR 1.183-2(b) (eCFR, up to date as of Oct 15, 2026), summarized. The last column is our illustration for a reseller, not IRS text.*

| Factor | What the regulation says can point to a profit motive | Questions a reseller might ask |
| --- | --- | --- |
| 1. How you carry on the activity | A businesslike manner with complete and accurate books; changing methods, or dropping unprofitable ones, to improve profitability | Do I track cost and sale price for each item? Have I stopped buying what loses money? |
| 2. Your expertise or your advisers' | Studying the activity's accepted business practices, or consulting experts, and following them | Do I research sold prices before I buy? |
| 3. Time and effort | Spending much personal time on it, especially without substantial recreational aspects, or hiring competent people to run it | How many hours a week go to sourcing, listing and shipping? |
| 4. Expected appreciation of assets | Profit includes appreciation in the value of assets used in the activity | Am I holding stock I expect to rise in value? |
| 5. Success in other activities | Having turned similar activities from unprofitable to profitable before | Have I run a profitable selling business before? |
| 6. History of income or losses | Start-up losses don't necessarily show a lack of profit motive, and neither do losses from circumstances beyond your control, such as depressed market conditions | Are my losses from the start-up years, or have they gone on longer than it usually takes to turn a profit? |
| 7. Amount of occasional profits | A substantial profit, even an occasional one, generally points to profit where the investment or losses are comparatively small | How do my profits compare with what I've put in? |
| 8. Your financial status | Lacking substantial income or capital from other sources may point to profit; substantial other income may point the other way, especially with personal or recreational elements | Is this a meaningful part of my income? |
| 9. Personal pleasure or recreation | Enjoying the activity isn't enough to make it not-for-profit if other factors show a profit motive | Does the activity appeal to me for reasons other than profit? |

## The 3-of-5-year presumption

Form 5213 says an activity is presumed to be engaged in for profit if its gross income exceeds its deductions in 3 or more of the 5 consecutive tax years ending with the year in question (2 of 7 for horse breeding, training, showing or racing).

A new activity can elect, on Form 5213, to postpone that determination until the close of the 4th tax year after the year it started. The form is due within 3 years after the due date of the return for the first year (determined without extensions), or, if a written IRS notice proposing to disallow deductions comes first, within 60 days after the notice; the 60 days don't extend the 3 years. Filing it generally extends the period for assessing tax attributable to the activity.

Missing the presumption doesn't settle the question by itself. The IRS's business activities page says what you need is a profit motive, not a profit.

## What changes if it is a hobby

Publication 525 says income from an activity you don't expect to make a profit from still has to be included on your return, on Schedule 1 (Form 1040), line 8j. It says the related deductions are limited: they can't total more than the activity's income and can be taken only if you itemize. Publication 529 is more direct: it says the expenses for such an activity are miscellaneous itemized deductions and can no longer be deducted.

The IRS's hobby fact sheet puts the loss side plainly: without a profit motive, a loss from the activity can't offset other income.

## What comes with a business

A business run as a sole proprietor uses Schedule C, which brings self-employment tax once net earnings reach $400 and, often, estimated tax payments. See [Schedule C or not](https://resellerindex.com/tax/irs/does-reselling-go-on-schedule-c/), [self-employment tax](https://resellerindex.com/tax/irs/self-employment-tax-400-rule/) and [estimated tax](https://resellerindex.com/tax/irs/estimated-tax-for-resellers/).

## Worked examples

### Five years of results

An activity's net results are: 2021, a $850 loss; 2022, a $1,240 profit; 2023, a $310 loss; 2024, a $460 profit; 2025, a $2,075 profit. Gross income exceeded deductions in 2022, 2024 and 2025, 3 of the 5 years ending with 2025, so the Form 5213 presumption applies for 2025. Over the five years the activity netted $2,615.

### Same sales, different facts

Two sellers each take in $3,000 in a year. One is clearing out a closet of clothes she wore, mostly for less than she paid: those are personal items, covered on [personal items sold at a loss](https://resellerindex.com/tax/irs/personal-items-sold-at-a-loss-1099-k/). The other buys about 300 items a year at thrift stores, records each item's cost and stops buying categories that don't sell. The second seller's facts touch factors 1, 2 and 3 in the regulation; the first isn't buying anything to resell.

## Edge cases

- Losses in the start-up phase don't by themselves show a hobby, the regulation says, and neither do losses caused by things like theft or depressed market conditions.
- Enjoying it is allowed. The regulation says that getting personal pleasure from an activity isn't enough to make it not-for-profit if it is in fact engaged in for profit.
- Selling off a collection kept for pleasure is different again: Publication 525 says a gain on items collected as a hobby is taxable as a capital gain, and a loss on them can't be deducted.
- Part-time can still be a business: the IRS's business activities page says you don't have to carry on regular full-time business activities to be self-employed.

## What to do

1. Keep books the way a business would: cost and sale price for each item or lot, fees and expenses.
2. Write down changes you make to improve profit, such as dropping a category or changing where you source.
3. Track the hours you spend sourcing, listing and shipping.
4. If the activity is new and still losing money, ask a tax professional about Form 5213 and its filing window.
5. Have a tax professional look at your own facts; no single factor decides.

## Questions

### Do I have to make a profit to be a business?

No. The IRS says you don't need to make a profit to be operating a trade or business, but you do need a profit motive. A profit in 3 of 5 years creates a presumption in your favor; it isn't the only way to show a profit motive.

### Can I deduct expenses if it's a hobby?

Publication 529 says expenses for an activity you don't carry on to make a profit are miscellaneous itemized deductions and can no longer be deducted, and Publication 525 says hobby losses aren't deductible from other income.

### Is part-time reselling a business?

It can be. Publication 334 says you can have business income even if you aren't involved in the activity on a regular full-time basis, and the test is still the profit motive and the facts above.

### Where does hobby income go on a return?

Publication 525 says income from an activity not engaged in for profit is entered on Schedule 1 (Form 1040), line 8j. Whether your activity is one is a question to work through with a tax professional.

## Related questions

- [When does selling things online go on Schedule C, and when doesn't it?](https://resellerindex.com/tax/irs/does-reselling-go-on-schedule-c/)
- [Do you owe tax on a 1099-K for personal items sold at a loss?](https://resellerindex.com/tax/irs/personal-items-sold-at-a-loss-1099-k/)
- [When does a reseller owe self-employment tax, and how much is it?](https://resellerindex.com/tax/irs/self-employment-tax-400-rule/)
- [What records should a reseller keep for the IRS?](https://resellerindex.com/tax/irs/what-records-should-a-reseller-keep/)
- [Form 1099-K for resellers: the $20,000, 200-transaction test](https://resellerindex.com/guides/1099-k-for-resellers/)
- [State rules: marketplace sales tax and state 1099-K thresholds](https://resellerindex.com/tax/states/)
- [All federal tax answers for resellers](https://resellerindex.com/tax/irs/)

## General information, not tax advice

This page summarizes IRS publications, instructions and guidance as read on Oct 19, 2026. It doesn't say what you should file or deduct. Tax rules depend on your facts, and state rules aren't covered here (see [state rules](https://resellerindex.com/tax/states/)). Check with a tax professional.

## Sources

Every figure, rule and quote on this page comes from one of these official pages.

- [Instructions for Schedule C (Form 1040) (2025)](https://www.irs.gov/instructions/i1040sc) (IRS, page reviewed or updated Apr 30, 2026; read Oct 19, 2026)
- [26 CFR 1.183-2, Activity not engaged in for profit defined (eCFR)](https://www.ecfr.gov/current/title-26/section-1.183-2) (eCFR, up to date as of Oct 15, 2026; read Oct 19, 2026)
- [Form 5213 (Rev. February 2006), Election To Postpone Determination as To Whether the Presumption Applies That an Activity Is Engaged in for Profit](https://www.irs.gov/pub/irs-pdf/f5213.pdf) (IRS; read Oct 19, 2026)
- [Business activities](https://www.irs.gov/businesses/small-businesses-self-employed/business-activities) (IRS, page reviewed or updated Mar 26, 2026; read Oct 19, 2026)
- [Publication 525 (2025), Taxable and Nontaxable Income](https://www.irs.gov/publications/p525) (IRS, page reviewed or updated Apr 30, 2026; read Oct 19, 2026)
- [Publication 529 (12/2020), Miscellaneous Deductions](https://www.irs.gov/publications/p529) (IRS, page reviewed or updated Apr 30, 2026; read Oct 19, 2026)
- [Know the difference between a hobby and a business (FS-2022-38, October 2022)](https://www.irs.gov/newsroom/know-the-difference-between-a-hobby-and-a-business) (IRS; read Oct 19, 2026)
- [Publication 334 (2025), Tax Guide for Small Business](https://www.irs.gov/publications/p334) (IRS, page reviewed or updated Apr 30, 2026; read Oct 19, 2026)

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