The Alaska daily empire., 1918-03-15
INCOME TAX PRIMER { FOR
 BUSY PEOPLE
Continued from Yesterday

der the provision of the fourth para graph or section of the, act of Sep tember 8, 1916, and those allow able under the provision of the fifth paragraph, same section?
 Losses, for income-tax purposes, are divided into two classes: ,a) Those incurred in business or trade and (b) those resulting from trans actions entered into for profit but not connected with the taxpayers regular business or trade.
 For example: "A" is regularly engaged in buying improved or un- improved real property with the in tention of selling the same as early as possible at profit. In one CT more instances the property par chased may be sold at a loss, and that loss may be claimed by him as deduction under the prpyisions of the fourth paragraph for the req son that he is regularly engaged in buying and selling real estate. Now "B' buys a home or, perhaps, he 
 erty in the course of several years. He is not regularly engaged in buying and selling real estate and, therefore, any loss he may suffer through the transaction can only be claimed by him as a deduction under the pro- visions of the fifth paragraph of sec tion 5; that is, only so much of his losses as does not exceed the amount of gain or profit derived during the same year from other transactions entered into for profit, but not con- nected with his regular business or trade, can be claimed If "B" in 1917, sold one property at loss of $2,000 and another property at a gain of $1,000 under Gross income" and can claim only that amount as a loss.
 This same rule is applicable in the case of losses arising from purchas- es and sales of stocks and bonds. If the taxpayer is regularly engaged in buying and selling such securities, any loss he may suffer may be claimed under the provision of the fourth paragraph If he is not so engaged it may only be claimed un- der the provisions of the fifth para graph
 84 In computing amount of profit or loss resulting from purchase and sale of securities which is to be re- turned or claimed as a deduction under the provisions of the fifth para graph of section of the act of September 8. 1916, is interest or divi- dends received on the securities dur ing the tax year to be taken into con. sideration?
 No. Interest and dividends are held to be items of current income returnable as such, and they are not to be considered when computing the amount of profit or loss which results from purchase and sale. S5 professional man or a mer, chant owns and operates a fancy stock farm The expenses of op- eration exceed the gross receipts. Can the difference be claimed as a deduction under the head of Toss esp
 No. It is held that where farm is operated for purposes of recrea tion or pleasure, and not primarily for profit, but as hobby, that farm is not to be classed as a commercial enterprise, that it does not form a part of the owners business or trade and until it is placed upon a profit paying basis the gross receipts are not to be reported under Gross in come" and the expenses are not to be claimed as a deduction. This rul ing. of course, precludes the claiming of the difference between the two amounts as a lOss.' 8S. Suppose buy farm which is much run down with the inten tion of making it profit-paying property. To do this I am obliged to expend large amounts for labor in clearing away brush, for fertilizer lime, etc, and for several years the expenses will greatly exceed the no portion of the gross receipt is expenses over receipts for each year be claimed as loss?
 No. The amounts so expended are held to be investments of capital, the result of which is an improve ment or betterment. and, until the farm becomes paying proposition, no portion of the gross receipth is to be reported as income and no portion of the expense can be claim. ed as deduction. either under the head of Business expense" or under the head of Losses"
 This same ruling is equally appli. cable in the case of a young or chard If. after the farm or orchard has been placed upon profit-payins basis bad year follows and a loss is sustained during that year, that