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    Office in Home, Casualty Loss, Hobby Loss

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    Problem 39
    David is a college professor who does some consulting work on the side. He uses 25% of his home exclusively for the consulting practice. He is single and 63 years old. His AGI (without consideration of consulting income) is $45,000. Other information follows:

    Income from consulting business $4,000
    Consulting expenses other than home office 1,500
    Total costs related to home:
    Interest and taes 6,500
    Utilities 1,500
    Maintenance and repairs 450
    Depreciation (business part only) 1,500
    Calculate David's AGI _____________________________________

    Problem 53
    Derrick owns a farm in North Carolina. A hurricane hit the area and destroyed a farm building and some farm equipment and damaged a barn.

    Item Adjusted basis FMV before damage FMV after damage Insurance proc.
    Building 85,000 115,000 0 55,000
    Equipment 68,000 49,000 0 15,000
    Barn 95,000 145,000 95,000 35,000

    Due to the extensive damage throughout the area, the president of the United States declared all areas affected by the hurricane as a disaster area. Derrick, who files a joint return with his wife, had $45,000 of taxable income last year. Their taxable income this year is $150,000, excluding the loss from the hurricane. Calculate the amount of the loss by Derrick and his wife and the years in which they should deduct the loss.

    Problem 55
    Eric, who is single, participates in an activity that is appropriately classified as a hobby. The activity produces the following revenue and expenses.

    Revenue 12,000
    Property tax 2,000
    Materials and supplies 4,000
    Utilities 1,500
    Advertising 1,900
    Insurance 775
    Depreciation 5,000

    Without regard to this activity, Eric's AGI is $55,000. Determine how much income Eric must report, the amount of the expenses he is permitted to deduct, and his AGI.
    Problem 56

    In 2009 Landon has self-employment earnings of $205,000. Compute Landon's self-employment tax liability and the allowable income tax deduction of the self-employment tax paid.

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    Solution Preview

    Problem 39
    David is a college professor who does some consulting work on the side. He uses 25% of his home exclusively for the consulting practice. He is single and 63 years old. His AGI (without consideration of consulting income) is $45,000. Other information follows:
    Income from consulting business $4,000
    Consulting expenses other than home office 1,500
    Total costs related to home:
    Interest and taxes 6,500 x .25 = 1625
    Utilities 1,500 x .25 = 375
    Maintenance and repairs 450 x .25 = 113
    Depreciation (business part only) 1,500
    Calculate David's AGI $45,000 + 4000 - 1500 - 1625 - 375 -113 - 1500 = $45,000+4000 - 4000 = $45,000; the home office expenses are not allowed to create a loss on the consulting business

    Problem 53
    Derrick owns a farm in North Carolina. A hurricane hit the area and destroyed a farm building and some farm equipment and damaged a barn.

    Item Adjusted basis FMV before damage FMV after damage Insurance proc.
    Building ...

    Solution Summary

    This solution consists of three cases presented. The first case is the calculation of Adjusted Gross Income taking into consideration the Home Office deduction. The second case is the calculation of loss due to a casualty. The third case is the calculation of the impact of hobby income and deductions on a self-employed individual.

    $2.19