For an Activity Classified as a Hobby, the Expenses Are

question 13

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) .
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:

Moral Reasoning

A cognitive process that involves evaluating the ethical rightness or wrongness of different actions or behavior.

Decision-making Skill

The ability to select between two or more alternatives to achieve the best outcome in a given situation.

Moral Development

The pathway through which individuals acquire suitable dispositions and practices in relation to others in their community, influenced by the norms, rules, and laws of social and cultural contexts.

Kohlberg's Level

Part of Kohlberg's stages of moral development which outlines the progression of moral reasoning through predefined developmental stages.