Problem 3-29 Hobby Losses (LO 3.13)

Lew is a practicing CPA who decides to raise bonsai as a business. Lew engages in the activity and has the following revenue and expenses:

Sales	$ 5,000
Depreciation on greenhouse	10,000
Fertilizer, soil, pots	1,500

a. Select either "Yes" or "No" to indicate which of the following are factors the IRS will consider when evaluating whether the activity is a hobby.

1.	Whether the activity is conducted like a business
2.	The expertise of the taxpayer
3.	The time and effort expended
4.	Previous success of the taxpayer in different activities
5.	Income and loss history from the activity
6.	Losses are due to circumstances beyond the taxpayer's control or are normal in the start-up phase
7.	The taxpayer changes the method of operation to improve profitability
8.	The dependence on the activity for the taxpayer's income
9.	Whether a future profit can be expected from the appreciation of the assets used in the activity

b. If the activity is deemed to be a regular business, what is the amount of Lew's loss from the activity? $

c. If the activity is deemed to be a hobby, what is the amount of Lew's expenses (if any) from the activity that may be deducted? $