John baron a professional baseball player raises

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John Baron, a professional baseball player, raises Black Angus cattle under circumstances that would 72. indicate that the activity is a hobby. His adjusted gross income for the year is $50,000, and he has $500 of other miscellaneous itemized deductions, all of which are subject to the two-percent floor. During the taxable year, he paid $300 in state taxes on real property used in the cattle operation. Feed for the cattle cost $1,500. The income from the sale of cattle was $1,400. (a.) Under the hobby loss rule, to what extent is the expense of $1,500 deductible? (b.) Under the two-percent-of-adjusted-gross-income limitation, how much is the overall deductible amount of his itemized deductions?
73. in 2010. A breakdown of Bob’s and Alice’s income and deductions is as follows:Business Income$50,000$44,000Business Deductions63,00050,000Nonbusiness Income16,00022,000Nonbusiness Deductions14,00027,000Determine Bob’s and Alice’s NOL for 2010.You own a building that you constructed on leased land. You use half of the building for your business and 74. you live in the other half. The cost of the building was $400,000. You made no further improvements or additions to it.A fire in March damaged the entire building. The FMV of the building was $380,000 immediately before the fire and $320,000 afterwards. Your insurance company reimbursed you $40,000 for the fire damage. Depreciation on the business part of the building before the fire totaled $24,000. How much is your deductible business casualty loss in 2010?
495Testbank©2010 CCH. All Rights Reserved. Chapter 7ANSWERS TO TRUE-FALSE QUESTIONS—CHAPTER 7True. 1. False. Portfolio income is not derived from a trade or business. 2. False. The passive loss limitations also apply to estates and trusts. 3. True. 4. True. 5. False. Losses caused by a taxpayer’s willful act or willful negligence are not deductible. 6. True. 7. True. 8. False. Hobby expenses are subject to the two-percent floor. 9. True. 10. True. 11. False. The gain from the sale of property that produces portfolio income is also classified as portfolio 12. income. True. 13. False. Net operating loss can be carried back two years and forward 20 years. 14. False. The taxpayer should enter into, or continue, the activity with the objective of making a profit, but a 15. reasonable expectation of profit is not required.False. Disaster area losses may be carried back to the tax year preceding the year of loss.16. True. 17. False. The deductible loss is the adjusted basis of the property.18. False. Any insurance proceeds will reduce the amount deductible.19. False. There are five categories.20.

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