Question

1. Nikeya sells land (adjusted basis of $120,000) to her adult son, Shamed, for its appraised value of $95,000. Which of the following statements is correct?

	a.	Nikeya’s recognizes a loss of $25,000 ($95,000 amount realized – $120,000 adjusted basis).
	b.	Shamed’s adjusted basis for the land is $120,000 ($95,000 price he paid + $25,000 disallowed loss for Nikeya).
	c.	Only a. and b. are correct
	d.	Nikeya's loss is disallowed and, if Shamed subsequently sells the land for $112,000, he has no recognized gain or loss.

2.

Priscella pursued a hobby of making bedspreads in her spare time. Her AGI before considering the hobby is $40,000. During 2018 she sold the bedspreads for $10,000. She incurred expenses as follows:

Supplies	$4,000
Interest on loan to get business started	500
Advertising	6,500

​Assuming that the activity is deemed a hobby, how should she report these items on her tax return?

	a.	Include $10,000 in income and deduct nothing.
	b.	Include $10,000 in income and deduct $11,000 for AGI.
	c.	Ignore both income and expenses since hobby losses are disallowed.
	d.	Include $10,000 in income, deduct nothing for AGI, and claim $11,000 of the expenses as itemized deductions.

Answer 1

ANSWER (1) Any loss or gain from sale of property can be recognised at its appraisal value- cost of property.

(a) Nikeya's recognises loses of $ 25000 ($95,000 amount realized – $120,000 adjusted basis)

ANSWER (2)

According to IRS, any income from hobby is included in income, but losses from hobby cannot be adjusted in income.so, hobby income are included in AGI but one cannot permitted to deduct any expenses out of it. After 2018, no deductions are allowed as itemized deduction.

ANSWER:- (a) Include $ 10000 but deduct nothing in AGI