Another Farm is Now a Hobby

The Tax Court that a farm loss is non-deductible since it is a hobby

Photo by David Dibert on Unsplash

The Tax Court released T.C. Memo 2025-95 on Monday for the Wesley and Janet Young case.

This is another “farm” loss that the Tax Court ultimately decided was in fact a hobby and the losses incurred by the taxpayers were disallowed. The key facts are as follows:

• In 2008, Ms. Young and her late husband had purchased the 83-acre Pecandarosa Ranch for about $2 million. The ranch included a residence, a guest house and about 500 pecan trees near Rogers, Oklahoma. Her husband died in December 2011 and at that time she became the sole owner of ETI, Inc. which manufactured and refurbished airplane parts.

• After her husband’s death, she married Wesley Young, who had a history of ranch management. They elected to build a 22,590 square-foot arena on the property, which was completed in July 2013. Mr. Young had a history of participating in team roping and other related activities.

• From 2008-2022, the taxpayers reported over $2.9 million of wages and about $16 million of pass-through income from ETI.

• As expected, the ranch never reported a profit and had cumulative losses of almost $3 million at the time of audit.

• During 2013 and 2014, the taxpayers reported net losses from the ranch of $257,656 and $305,893, respectively.

• The operated that ranch as a sole proprietorship, did not utilize a separate bank account, maintain any type accounting system, etc. However, once the audit commenced, the taxpayers started using QuickBooks, formed an LLC and opened a business checking account.