1. John Davis, a professional dentist, raises horses under circumstances that would indicate that the activity is a hobby. His adjusted gross income for the year is $100,000, and he has $2,000 of other miscellaneous itemized deductions, all of which are subject to the 2% floor. During the taxable year, the cost for feeding horses was $3,000. The income from the sale ofhorses was $2,800.

2.Betty Jones files a return as a single taxpayer. Items of income received by Betty in 2016 were as follows.

• Interest on savings account with Bank of America: $100
• Interest on state income-tax refund: $50
• Gambling winnings: $4,800
• Dividends from mutual life insurance company on life insurance policy: $1,000
• Dividends declared in 2015 from Better Auto Co. received on January 2, 2016: $875

(a) How much should Betty include in her 2016 taxable income as interest?

(b) How much should Betty report as dividend income for 2016?

(c) How much should Betty include in taxableother incomefor her state lottery winnings?

(a) Under the hobby loss rule, to what extent is the expense of $3,000 deductible?

(b) Under the 2%-of-adjusted-gross-income limitation, how much is the overall deductible amount of his itemized deductions?

Please show work.