Priscella Pursued a Hobby of Making Bedspreads in Her Spare

question 131

Multiple Choice

Priscella pursued a hobby of making bedspreads in her spare time.Her AGI before considering the hobby is $40,000.During the year she sold the bedspreads for $10,000.She incurred expenses as follows: Assuming that the activity is deemed a hobby,how should she report these items on her tax return?

• A) Include $10,000 in income and deduct $11,000 for AGI.
• B) Ignore both income and expenses since hobby losses are disallowed.
• C) Include $10,000 in income, deduct nothing for AGI, and claim $10,000 of the expenses as itemized deductions.
• D) Include $10,000 in income and deduct interest of $500 for AGI.
• E) None of the above.

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Definitions:

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