Nancy, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $35,000 of expenses associated with this investigation. Based on the regulatory environment for hotels in the city, she decides not to expand. During the year, she also investigates opening a restaurant that will be part of a national restaurant chain. Her expenses for this are $53,000. The restaurant begins operations on September 1. Determine the amount Nancy can deduct in the current year for investigating these two businesses.

$3,133.

As regard to opening a restaurant,  investigation expense = 53,000 - 2000 = $51,000.

Explanation:

Before diving straight into the solution to this problem, let's take out some of the parameters given in the question above.

=> Nancy incurs $35,000 of expenses associated with the investigation of the possibility of expanding the chain into a city in the Northeast.

=> Nancy expenses for investigates opening a restaurant that will be part of a national restaurant chain are $53,000.

The first thing to do right now is to determine the value for the  investigation as regard to the opening of a restaurant = [ 2000 × (51,000/180 months) × 4] = $3,133.

The next thing is to determine the value for the deduction which is available. This can be done below as:

The amount Nancy can deduct in the current year for investigating these two businesses = 5000 - [ 53000 - 50000] = $2, 000

As regard to opening a restaurant,  investigation expense = 53,000 - 2000 = $51,000.

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