Samantha, an executive, has AGI of $100,000 before considering income or loss from her miniature horse business.
Question:
Samantha, an executive, has AGI of $100,000 before considering income or loss from her miniature horse business. Her outside income comes from prizes for winning horse shows, stud fees, and sales of yearlings. Samantha's home is on 20 acres, half of which she uses for the horse activity (i.e., stables, paddocks, fences, tack houses, and other related improvements).
Samantha's office in her home is 10% of the square footage of the house. She uses the office exclusively for maintaining files and records on the horse activities. Her books show the following income and expenses for the current year:
Income from fees, prizes, and sales ....................................................... $22,000
Expenses
Entry fees ....................................................................................... 1,000
Feed and veterinary bills ...................................................................... 4,000
Supplies ........................................................................................... 900
Publications and dues ........................................................................... 500
Travel to horse shows (no meals) ........................................................... 2,300
Salaries and wages of employees ........................................................... 8,000
Depreciation -
Horse equipment .................................... $3,000
Horse farm improvements ........................... 7,000
On 10% of personal residence ...................... 1,000 .............................. 11,000
Total home mortgage interest ............................................................. 24,000
Total property taxes on home ............................................................... 2,200
Total property taxes on horse farm improvements ......................................... 800
The mortgage interest is only on her home because the horse farm improvements are not mortgaged.
a. What are Samantha's tax consequences if the miniature horse activity is a hobby?
b. If it is a business?
Step by Step Answer:
a If the miniature horse activity is held to be a hobby Samanthas deductions associated with the hobby may not exceed her gross income from the activity Income 22000 Deduct Mortgage interest 10 24000 ...View the full answer
South Western Federal Taxation Individual Income Taxes 2017
ISBN: 9781305873988
40th Edition
Authors: William H. Hoffman, David M. Maloney, William A. Raabe, James C. Young, Nellen
