I'm certainly not a tax expert, but I believe that hobby losses can fully offset up to and including any hobby income that you may earn. (as opposed to losses from a full-time business venture, which can offset ordinary income that is not tied to the specific business).

In short, hobby gains and losses are like gambling wins and losses. If I lose $100 at a casino, I can't use it to offset income that I got flipping burgers at McDonalds (or whatever). I can, however, use the $100 in losses to offset the $1000 that I won last week at the slot machines, for a net taxible gain of $900 in gambling winnings.

All this said, I don't think the IRS will be snooping around the board to find people to audit for the couple hundred bucks that they might make at their hobby. If someone is making a substantial amount of money, such that you could make the case that you depend on all or a portion of it for your normal income, then you're probably already declared yourself a business, and thus have the more favourable tax treatment.

Of course, it's always good practice (as well as just being the right thing to do and invoking good Karma) to keep good records and declare any and all income. But if you happen to sell a chip on eBay that you bought a couple of years ago and you can't remember what you paid for it to figure out any gain, I wouldn't be overly concerned about the Feds pulling up in your driveway to repossess your First Born.

Again, I am not a tax professional, so take my comments as a personal opinion and nothing more. Your mileage may vary depending on usage . My strategy for avoiding the whole income mess? I never sell anything, I only buy!

Brent J. Jensen
R-6335
orbis non sufficit