11 May WHICH OF THE FOLLOWING IS NOT RELEVANT IN DETERMINING WHETHER AN ACTIVITY IS PROFIT-SEEKING OR A HOBBY?
What is the correct treatment of the rental income and expenses on Bob
and Aprils joint income tax return for the current year assuming the IRS
approach is used if applicable?2 out of 2 pointsTerry and Jim are both involved in
operating illegal businesses. Terry operates a gambling business and Jim
operates a drug running business. Both businesses have gross revenues of
$500,000. The businesses incur the following expenses. Terry Jim Employee salaries$200,000 $200,000Bribes to police25,000 25,000Rent and utilities50,000 50,000Cost of goods sold0 125,000
Which of the following statements is correct?2 out of 2 points Which
of the following is not relevant in determining whether
an activity is profit-seeking or a hobby?Selected Answer:
All of the above are relevant factors.2 out of 2 pointsRobyn 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$9,000Real estate taxes3,000Utilities2,000Maintenance1,000Insurance500Depreciation (rental part)4,000
Using the IRS approach, total expenses that Robyn can
deduct on her tax return associated with the beach house are:Response Feedback:Since
the property is classified as personal/rental use, the general rule is
that the deductible expenses cannot exceed the gross income. Thus,
under the general rule, the deductible expenses would be limited to
$6,000. However, this ceiling does not apply to expenses that otherwise
would be deductible as itemized deductions. Consequently, all of the
mortgage interest and real estate taxes can be deducted ($9,000 +
$3,000 = $12,000).2 out of 2 pointsWhich
of the following statements is correct in connection with the
investigation of a business?2 out of 2 pointsWhich
of the following is a deduction for AGI (itemized
deduction)?0 out
of 2 pointsPurchased
goodwill must be capitalized, but can be amortized over a 60-month period.2 out
of 2 pointsMitch
is in the 28% tax bracket. He may receive a different tax benefit for
a $2,000 expenditure that is classified as a deduction from AGI
than he will receive for a $1,000 expenditure that is classified as a
deduction for AGI.2 out
of 2 pointsThe
income of a sole proprietorship are reported on Schedule C (Profit or Loss
from Business).
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