The One Big Beautiful Bill Act (OBBBA) permanently extended a harsh TCJA rule: no deduction for “miscellaneous itemized deductions,” including hobby expenses. That’s brutal for dog breeders, because the IRS often labels breeding as a hobby.

Translation: income gets taxed, expenses don’t. Hobby income is reported separately on Schedule 1, but most related costs are simply nondeductible.

There is a narrow carve-out: if you sell inventory (puppies), you can reduce taxable hobby income by direct costs tied to those sales. Beyond that, hobby treatment is a tax dead end.

Good news: you don’t have to accept hobby status. If you structure and run breeding as a business, you unlock deductions and escape the OBBBA/TCJA penalty box.