Sadie is a full time nurse and a part time painter. Her painting qualifies as a hobby. Her gross income from painting is $7,000. Her expenses include $800 of interest on inventory loans, $5,200 of expenses in conducting business activities, and $2,000 of depreciation of equipment. Which of the following statements about Sadie's hobby activity is/are correct?
I.Sadie will not recognize any taxable income as a result of her hobby.
II.Sadie can deduct the interest of $800 plus $6,200 of other hobby expenses for the year.
III.If Sadie itemizes her deductions she will not receive any tax benefit from the hobby expenses.
IV.If Sadie uses the standard deduction she will not receive any tax benefit from the hobby expenses.

Question

Sadie is a full time nurse and a part time painter. Her painting qualifies as a hobby. Her gross income from painting is $7,000. Her expenses include $800 of interest on inventory loans, $5,200 of expenses in conducting business activities, and $2,000 of depreciation of equipment. Which of the following statements about Sadie's hobby activity is/are correct?
I.Sadie will not recognize any taxable income as a result of her hobby.
II.Sadie can deduct the interest of $800 plus $6,200 of other hobby expenses for the year.
III.If Sadie itemizes her deductions she will not receive any tax benefit from the hobby expenses.
IV.If Sadie uses the standard deduction she will not receive any tax benefit from the hobby expenses.
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Quizplus · Accepted Answer

Under the Tax Cuts and Jobs Act of 2017, individuals can no longer deduct expenses related to hobbies from their gross income. This means that while Sadie must report the $7,000 as income, she cannot deduct any expenses related to her painting hobby, regardless of whether she itemizes deductions or takes the standard deduction. Therefore, statements III and IV are correct, as she will not receive any tax benefit from her hobby expenses whether she itemizes or not.

Sadie Is a Full Time Nurse and a Part Time