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.

If an amount is zero, enter "0".

a.   What are Samantha's tax consequences if the miniature horse activity is a hobby?
Samantha reports net income from the activity of $. The gross income is reported as an amount for AGI and the expenses are reported as  itemized deductions . The overall tax effect (after any limitations and any expenses deductible whether a hobby or a business) is a net increase in taxable income of $.

b.   What are Samantha's tax consequences if the miniature horse activity is a business?
Samantha reports a net loss from the activity of $ which is reported as amount for AGI . The overall tax effect (after any limitations and any expenses deductible whether a hobby or a business) is a net decrease in taxable income of $.

Answer 1