What portion of hobby expenses can be deducted?

The correct answer is that hobby expenses can be deducted up to the amount of income generated from the hobby. This aligns with IRS regulations regarding hobby activities, which distinguish them from business activities. When an activity is classified as a hobby, the taxpayer is limited in how much of the associated expenses they can deduct.

Specifically, the IRS allows hobby income to be reported, but expenses related to that hobby can only be deducted to the extent that they do not exceed the income generated from the hobby itself. This means if the hobby generates $1,000 in income, a taxpayer can deduct up to that amount in related expenses, but not more. Any expenses beyond the income cannot be claimed as deductions.

This provision prevents taxpayers from claiming large expenses associated with hobbies that ultimately operate at a loss. It reflects the intent to support genuine profit-making activities while recognizing that hobbies are usually pursued for pleasure rather than profit.