Chapter 8 Quiz
Trenton owns a country home that sometimes rents out to other people. Which of
the following statements regarding Trenton's rental
... [Show More] activity is correct?
A)If Trenton rents out the country home for less than half of the year, it will be considered a nontaxable activity.
B)If Trenton rents out the home for exactly half the year and uses the home personally for exactly half the year,
the activity will be considered primarily a rental activity.
C)If Trenton rents out the home for 180 days per year and uses the home personally for 20 days of the year, the
activity will be considered a mixed-use activity.
Rationale
Option a is not correct because the activity will only be considered a nontaxable activity if
Trenton rents out the country home for less than 15 days per year. Option b is not correct
because this option meets the requirements of a mixed-use activity. That is, the property is
rented out for 15 days or more, but the owner personally uses it for the greater of 14 days or
10% of the rental days. Option d is not correct because even if Trenton rents out the home for
more than half of the year, the activity may be a mixed-use activity if he personally uses the
property for the greater of 14 days or 10% of the rental days.
D)If Trenton rents out the home for more than half of the year, it will be considered primarily a rental activity
regardless of his personal use.
TXBB254Question 2 of 1Education Tax Quiz 5
Which of the following statements concerning hobby activities is correct?
A)Any activity which generates a profit within three years is presumed to be a for profit venture, not a hobby activity.
Rationale
Income generated from a hobby activity is included in gross income, and expenses associated with the
hobby will no longer be deductible as a miscellaneous itemized deduction. If the activity earns a profit
in three out of five years, it is presumed to be a for profit venture and the IRS has the burden of proof
of showing that there is no profit motive avoiding taxpayer’s above the line deductible business
expense. However, if there has not been a profit in three out of the last five years, the taxpayer has the
burden of proof to prove it is a "for profit" venture. There are extended timelines for certain specialty
businesses, BUT this is the general rule. [Show Less]