Question

Alex, who is single, conducts an activity in 2017 that is appropriately classified as a hobby. The activity produces the following revenues and expenses:

Revenue $18,000 Property taxes 3,000 Materials and supplies 4,500 Utilities 2,000 Advertising 5,000 Insurance 750 Depreciation 4,000

Without regard to this activity, Alex's AGI is $42,000 and his personal exemption is $4,050.

Complete the following statements regarding the treatment of the hobby activities.

Alex reports on page 1 of the Form 1040.

Excluding the property taxes, his total deductible expenses (before any AGI limitations) is limited to $.

Alex's reportable net from the hobby on his tax return is $ and his overall taxable income is $.

Answer 1

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Solution: BecauseAs per IRS, For Hobby Business, deductable expenses are limited to the related revenues. In this case, if perperty tax is excluded from Revenues then Remaining revenue will be equal to $15000 Threfore, (18000-3000) $15,000 a) Excluding the property taxes, his total deductible expenses (before any AGI limitations) is limited to 15,000 Alex's reportable net from the hobby on his tax return is (18000)-(3000)-[(15000)-(42000+18000)*296]-S Because, 15000 is subject to 2% AGI floor as misc. itemized deudction) 1,200 and his overall taxable income is (420001200) (4050) 39,150