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This is a tax question. A California taxpayer just bought…

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This is a tax question...
This is a tax question. A California taxpayer just bought two acres with productive citrus trees. The property also has a wonderful vacation home. The property is in a touristy rural locale about 100 miles outside Los Angeles. She has hired a management company that will maintain the orchard, harvest the citrus and sell the crop for the benefit of the land owner. The land owner spends very little time at this activity: less than 8 hours per week. She has all the risk of the venture. The management company receives a fee for its service and does not have ownership of the citrus and will not profit or lose because of the profit of the venture. Does this taxpayer qualify to report the activity on Schedule F? Is this a passive activity? Is it only a hobby?
Submitted: 27 days ago.Category: Tax
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3/29/2018
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 27 days ago
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 941
Experience: Former IRS Revenue Agent
Verified

I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

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Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 27 days ago

Dear Customer,

"has a wonderful vacation home" -- A lot of Southern California homes recently developed is with this type of settings.

It is not hobby. She does not do the activity.

It is well, not a sort of passive activity. She is not just passively investing. She is actively managing the place. She is at least materially participating. -- similar to rental activities.

She is the owner of the land. Large or small, it is Schedule F activity. It is some type of farming.

It is suggested that the income and expenses to be reported on Schedule F. She has profit motive.

Please feel free to follow up.

Regards,

Fiona

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Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 27 days ago

p.s. Hobby income has many criteria. From what is posted, it does not look like hobby income. For activities listed as "hobby income", the person usually is using the activities to write off losses. Therefore, hobby income's purpose is to limit the "hobby losses" to the amount of gain. So, even the activity can be "fruitful" and interesting. It may also become "gainful" instead of "harmful". Therefore, with all factors considered, it is not hobby activity.

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Customer reply replied 27 days ago
It seems like a passive activity to me since she only works about 50 hours in a year at the activity. It seems similar to raising race hoses
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 26 days ago

Dear Customer,

Raising race horses has much expenses.

Rental activities may require even less hours.

"less than 8 hours per week" is not "about 50 hours in a year at the activity".

How much was her gross income in 2017?

Regards,

Fiona

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Dr. Fiona Chen, Certified Public Accountant (CPA)
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