1. How would you define an activity classified as a hobby vs. a business?

2. What factors might be used to assist a taxpayer in determining whether an activity is a hobby or a business?

3. Matt, our taxpayer, has AGI from other income in the amount of $50,000. Indicate how the income and expenses for the activity below would be included in Matt's taxable income:

(1) if a hobby (including an explanation of any limitation of expenses); and (2) if a business.

Your answer must include your calculation, a brief explanation of any applicable rules and notes regarding where income and expenses are reported (which schedule)

Income $23,000

Mortgage Interest $6,000

Property Taxes $6,000

Depreciation $4,000

Supplies and Fees $7,000

Telephone $3,000