<P> There is a presumption that the activity is "for profit" created in § 183 (d) by the "three out of five year" rule . Gross income from the activity must exceed deductions from the activity in three out of the previous five years . If it does then the activity is likely presumed to be an activity engaged in for profit . The taxpayer must show a "primary, predominant, or principal purpose" of creating a profit . This topic is further explored in the 26 Code of Federal Regulations § 1.183 - 2 </P> <P> Some deductions, such as those in § 164 that allow for the deduction of certain taxes, are allowable without regard to whether the activity is engaged in for profit . These are not limited . </P> <P> On the other hand, those expenses that would be allowable if this were a trade or business or an investment are still allowable as a deduction here, except that they are limited as explained below . </P> <P> Section 183 (b) (2) provides that a taxpayer may deduct an amount "equal to the amount of the deductions which would be allowable (...) 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 (...)." This provision limits the deduction for expenses from hobby activities to amount equal to the gross income generated by the same activities . </P>

When does the presumption in code §183 generally apply