For an Activity Classified as a Hobby, the Expenses Are

question 20

Multiple Choice

For an activity classified as a hobby, the expenses are categorized as follows: (1) Amounts that affect adjusted basis and would be deductible under other Code sections if the activity had been engaged in for profit (e.g., depreciation, amortization, and depletion) .
(2) Amounts deductible under other Code sections without regard to the nature of the activity, such as property taxes and home mortgage interest.
(3) Amounts deductible under other Code sections if the activity had been engaged in for profit, but only if those amounts do not affect adjusted basis (e.g., maintenance, utilities, and supplies) .
For tax years before 2018, if these expenses exceed the gross income from the activity and are thus limited, the sequence in which they are deductible is:

• A)(1), (2), (3).
• B)(1), (3), (2).
• C)(2), (3), (1).
• D)(2), (1), (3).
• E)(3), (2), (1).

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Definitions:

Amoebozoans

A group of amoeba-like eukaryotes, characterized by their amorphous shape and movement through cytoplasmic streaming.

Flagella

Long, whip-like appendages that protrude from the cell body of certain prokaryotic and eukaryotic cells, used for locomotion or sensory functions.

Serial Endosymbiosis

The hypothesis that certain organelles such as mitochondria and chloroplasts originated as symbiotic prokaryotes that lived inside other free-living prokaryotic cells.

Mitochondria

Organelles found in the cytoplasm of most eukaryotic cells, responsible for producing energy through the process of oxidative phosphorylation.