Question

Abigail's hobby is sculpting. During the current year, Abigail sold three of her sculptures for a total of $3,200. Her related expenses include $1,500 in utilities, $1,200 in supplies and $900 in depreciation. Of the total expenses incurred, Abigail may deductA) $0.B) $1,500 in utilities and $1,200 in supplies.C) $1,500 in utilities, $1,200 in supplies, and $500 in depreciation.D) $1,500 in utilities, $1,200 in supplies and $900 in depreciation.

Answer 1

Answer:

Option (C) is correct.

Explanation:

Abigail deduct in depreciation:

= Total value of three sculptures - (Utility expenses + Supplies expenses)

= $3,200 - ($1,200 + $1,500)

= $3,200 - $2,700

= $500

Since, it is given that the sculpting is considered as a hobby and we know that hobby expenses are deductible to the extent of hobby income of $3,200.

Further, they are deducted in a specific order :

• Allowable such as property taxes and interest;
• Related to the activity other than those that decrease basis;

• Things which reduces basis (depreciation).