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Chuck, a dentist, raises prize rabbits for breeding and showing purposes. Assume that the activity is determined to be a hobby. During the year the activity generates the following items of income and expense:
Item Amount:
Sale of rabbits for breeding stock ........$800Prizes and awards ..............$300Property taxes on rabbit hutches ..........$200Feed..................$600Veterinary fees ................$500Depreciation on rabbit hutches ..........$250
Required:
a. What is the total amount of deductions Chuck may take during the year with respect to the rabbit raising activity?
b. Identify which expenses may be deducted and indicate whether they are deductions for or from AGI.
c. By what amount is the cost basis of the rabbit hutches to be reduced for the year?
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