You Make the Call - May 28, 2026

Question: Dr. Michael Harper is an orthopedic surgeon earning $650,000 annually. In 2021, he purchased 300 acres of rural land and began operating Harper Wildlife Ranch, LLC, which offers guided hunting, fishing and weekend eco-retreat experiences. 

From 2022-2026, the ranch generated annual gross income averaging $40,000, but Dr. Harper claimed annual losses in 2022-2026 ranging from $450,000 to $700,000 on Schedule F due to land improvements, staff and equipment. 

Dr. Harper argues that the ranch enhances the long-term value of the land. The activity provides branding and marketing opportunities for future real estate sales, and he intends to make a profit eventually. 

Can Dr. Harper deduct the ranch losses against his medical income? 
 
Answer: No. The losses are disallowed under §183 because the activity does not appear to be engaged in for profit. 

The IRS doesn’t just take a taxpayer’s word that they “intend to make a profit.” They apply a facts and circumstances test outlined in Reg. §1.183-2, and Dr. Harper’s situation raises several red flags that lead toward a hobby classification for the ranch. 

Dr. Harper’s ranch incurred losses ranging from $450,000 to $700,000 annually, with only $40,000 in income in each of the last five years, indicating no realistic path to profitability. Further, his $650,000 annual surgeon’s salary suggests the ranch may be used to generate tax losses to offset other income, a practice the IRS scrutinizes closely. 

A hunting/fishing ranch has inherent recreational appeal, which weighs toward hobby classification. 

The appreciation in land value is a weak argument for classifying the activity as a trade or business. Claiming the land will increase in value does not make the activity a for-profit business unless the appreciation is tied directly to the activity and a clear plan to realize that gain exists. The IRS often rejects “land appreciation” as a justification when the operating activity itself is deeply unprofitable as evident by decisions made in Schwarz v. Commissioner, T.C. Memo. 2024-55 and Young v. Commissioner, T.C. Memo. 2025-95.