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afford. As a result, Dr. Harrington could not have made a profit
from the horse-breeding activity even if he had been able to
achieve a 100-percent success rate in producing foals with
Appaloosa characteristics.
Discussion
Section 183(a) provides generally that if an activity is not
engaged in for profit, then no deduction attributable to the
activity shall be allowed except as provided in section 183(b).
Section 183(b)(1) allows a deduction for expenses that are
deductible without regard to whether the activity is engaged in
for profit, such as real estate taxes. Section 183(b)(2) allows
a further deduction for expenses that would be deductible if the
activity were engaged in for profit, but only to the extent that
gross receipts from the activity exceed deductions allowed by
section 183(b)(1).
An activity not engaged in for profit is any activity other
than one for which deductions are allowable under section 162 or
under paragraphs (1) or (2) of section 212. Deductions are
allowed under section 162 or 212 only when the facts and
circumstances show that the taxpayer engaged in the activity with
an actual and honest (but not necessarily reasonable) objective
of making a profit. Hulter v. Commissioner, 91 T.C. 371, 393
(1988) (“dominant hope and intent of realizing a profit”); Beck
v. Commissioner, 85 T.C. 557, 569 (1985) (“actual and honest
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