Question

Chuck, a dentist, raises prize rabbits for breeding and showing purposes. Assume that the activity is determined to be a hobby. During 2019, the activity generates the following items of income and expense:

Item                                                                                                                 Amount

Sale of rabbits for breeding stock                                                                  $800

Prizes and awards                                                                                          (300)

Property taxes on rabbit hutches                                                                    (200)

Feed                                                                                                                (600)

Veterinary fees                                                                                               (500)

Depreciation on rabbit hutches                                                                       (250)

1. What is the total amount of income and deductions Chuck should report for 2019 with respect to the raising activities?
2. Identify which expenses may be deducted and indicate whether they are deductions for or from AGI.
3. By what amount is the cost basis of the rabbit hutches to be reduced for the year?

Answer 1