2) Indicate how the income and expenses for the activity below are includible in taxable income:
(1)if a hobby;
(2)if a business.
Your answer must include your calculation, a brief explanation of any applicable rules and notes
regarding where income and expenses are reported (which schedules).
Income : $23,000
Mortgage interest: $6,000
Property taxes: $6,000
Depreciation $4,000
Supplies and fees : $7,000
Telephone: $3,000
Solution
(1)if a hobby; (2)if a business. Income : $23,000 Taxable Taxable Mortgage
interest: $6,000 Not Deductable Deductable Property taxes: $6,000 Not
Deductable Not Deductable Depreciation $4,000 Not Deductable Deductable
Supplies and fees : $7,000 Not Deductable Deductable Telephone:
$3,000 Not Deductable Deductable