Indicate the proper treatment in the current year for the underlined amounts.Treat each item as an independent event.Indicate whether the amount is deductible or not;if deductible whether it is deductible FOR or FROM AGI;and indicate the amount of the deduction for the current year considering any relevant limitations.Assume the taxpayer has deductions greater than the standard deduction,has AGI of $69,000 without regard to the following transactions and has no "total" income limitations related to itemized deductions.
-Hobby expenses of $2,500.Hobby income is $2,000.Amount $2,000,subject to 2% of AGI

Question

Quizplus · Accepted Answer

Hobby expenses are generally only deductible up to the amount of hobby income earned, and only if they are claimed as itemized deductions. Since the hobby income is less than the hobby expenses in this case, the expenses are not deductible. However, if the taxpayer was engaged in the hobby with the intention of making a profit, the expenses may be deductible as business expenses on Schedule C. Assuming they are not deductible as business expenses, the $2,000 hobby income is subject to the 2% AGI threshold for miscellaneous itemized deductions, so the $500 excess (i.e. $2,500 hobby expenses - $2,000 hobby income) can be deducted as a miscellaneous itemized deduction on Schedule A, but only to the extent that it exceeds 2% of the taxpayer's AGI. Therefore, the amount is deductible from AGI.

Indicate the Proper Treatment in the Current Year for the Underlined