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Scenario $3$: Hobby vs$.$ Business

Income from activity: $$28,000$

Expenses related to activity: $$35,000$

Other Wages: $$62,000$

Interest and Dividend Income: $$1,200$

Itemized Deductions: $$19,000$

Allowable deduction for self$-$employment tax: None

Questions:

Can the activity's losses be deducted on the tax return? Analyze the factors the IRS considers when determining hobby vs$.$ business.

If deductible, where on the tax return would these income and expenses be reported?

Scenario $4$: Casualty Loss and Insurance Reimbursements

Wages: Sarah $($$$70,000),$ James $($$$65,000)$

Interest and Dividend Income: $$900$

Itemized Deductions: $$26,000($before casualty loss considerations$)$

Allowable deduction for self$-$employment tax: None

Additional Information:

Home damaged by a federally declared disaster.

Adjusted basis in their home: $$300,000$

Fair Market Value before the disaster: $$380,000$

Fair Market Value after the disaster: $$200,000$

Insurance Reimbursement: $$150,000$

Calculate:

The amount of the casualty loss deduction.

AGI, Taxable Income, and Total Tax Liability.