Question

^Kori^:
21. Which of the following is not relevant in determining whether an activity is profit seeking or a hobby?
    A.  
Whether the activity is enjoyed by the taxpayer.
    B.  
The expertise of the taxpayers and time and effort expended.
    C.  
The relationship of profits earned and losses incurred.
    D.  
All of these are relevant factors.

^Kori^:
22. Barbara is in the business of dairy farming. During the year, one of her barns was completely destroyed by fire. The adjusted basis of the barn was $80,000. The fair market value of the barn before the fire was $75,000. The barn was insured for 95% of its fair market value, and Barbara recovered this amount under the insurance policy. She has adjusted gross income of $40,000 for the year (before considering the casualty). Determine the amount of loss she can deduct on her tax return for the current year.

^Kori^:
23. Simon, incurred and paid the following expenses in 2020:

Tax return preparation fee
$ 600
Moving expenses
2,000
Investment expenses
1,500
Expenses associated with rental property
1,000
Interest expense associated with loan to finance tax-exempt bonds
400
​
Calculate the amount that Simon can deduct (before any percentage limitations).

^Kori^:
24. Crystal incurred the following expenses for her dependent son during the current year:

Payment of principal on son’s automobile loan
$2,500
Payment of interest on son's automobile loan
1,800
Payment of son’s property taxes
1,700
Payment of principal on son’s personal residence loan
1,600
Payment of interest on son’s personal residence loan
6,900
​
How much may Crystal deduct in computing her itemized deductions?

^Kori^:
25. Robyn rents her beach house for 60 days and uses it for personal use for 30 days during the year. The rental income is $6,000 and the expenses are as follows:

Mortgage interest
$9,000
Real estate taxes
3,000
Utilities
2,000
Maintenance
1,000
Insurance
500
Depreciation (rental part)
4,000
​
Using the IRS approach, what are total expenses that Robyn can deduct on her tax return associated with the beach house?

Answer 1

21. Which of the following is not relevant in determining whether an activity is profit seeking or a hobby?

Answer;- D.  

All of these are relevant factors.

23. Calculate the amount that Simon can deduct (before any percentage limitations).

Tax return preparation fee

$ 600

Moving expenses

2,000

Investment expenses

1,500

Expenses associated with rental property

1,000

Total deductible amount is

5,100.

25. Using the IRS approach, what are total expenses that Robyn can deduct on her tax return associated with the beach house?

Answer:- $12,000.

Explanation :

Total expenses that Robyn can deduct on her tax return associated with the beach house

= Mortgage Interest + Rental estate taxes

$9,000 + $3,000

= $12,000.