Samantha, an executive, has AGI of $100,000 before considering income or loss from her miniature horse business.

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Samantha, an executive, has AGI of $100,000 before considering income or loss from her miniature horse business. Her outside income comes from prizes for winning horse shows, stud fees, and sales of yearlings. Samantha's home is on 20 acres, half of which she uses for the horse activity (i.e., stables, paddocks, fences, tack houses, and other related improvements).

Samantha's office in her home is 10% of the square footage of the house. She uses the office exclusively for maintaining files and records on the horse activities. Her books show the following income and expenses for the current year:

Income from fees, prizes, and sales ....................................................... $22,000

Expenses

Entry fees ....................................................................................... 1,000

Feed and veterinary bills ...................................................................... 4,000

Supplies ........................................................................................... 900

Publications and dues ........................................................................... 500

Travel to horse shows (no meals) ........................................................... 2,300

Salaries and wages of employees ........................................................... 8,000

Depreciation -

Horse equipment .................................... $3,000

Horse farm improvements ........................... 7,000

On 10% of personal residence ...................... 1,000 .............................. 11,000

Total home mortgage interest ............................................................. 24,000

Total property taxes on home ............................................................... 2,200

Total property taxes on horse farm improvements ......................................... 800

The mortgage interest is only on her home because the horse farm improvements are not mortgaged.

a. What are Samantha's tax consequences if the miniature horse activity is a hobby?

b. If it is a business?

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Related Book For  book-img-for-question

South Western Federal Taxation Individual Income Taxes 2017

ISBN: 9781305873988

40th Edition

Authors: William H. Hoffman, David M. Maloney, William A. Raabe, James C. Young, Nellen

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