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:

Eponychium

The thin layer of skin at the base of the fingernails and toenails.

Hyponychium

The region of thickened skin under the free edge of the nail plate on a finger or toe, providing a protective barrier against pathogens.

Nail Fold

The skin and soft tissue that encircles the nail plate, providing protection to the nail matrix area.

Impetigo

A highly contagious skin infection caused by bacteria, characterized by red sores, often around the nose and mouth.